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PROBLEMS  IN  THE 
PRINCIPLES  OF  ACCOUNTING 


BY 


WILLIAM  MORSE  COLE,  A.M. 

ASSOCIATE  PROFESSOR  OF  ACCOUNTING 
IN  HARVARD  UNIVERSITY 


CAMBRIDGE 
HARVARD  UNIVERSITY  PRESS 

1915 


COPYRIGHT,  1915 
HARVARD  UNIVERSITY  PRESS 


ACKNOWLEDGMENT 

THE  author  wishes  to  express  his  indebtedness  to  Professor 
Donald  English,  of  Cornell  University,  to  Dr.  Joseph  S.  Davis,  of 
Harvard  University,  and  to  Miss  Lolita  E.  Healey,  of  Radcliffe 
College,  for  painstaking  assistance  in  reading  the  proof  of  this 
volume,  for  suggestions  as  to  the  best  form  of  stating  the  problems, 
and  for  confirmation  of  the  correctness  of  the  answers  or  cues  given. 


Ad* 


CONTENTS 

PAGE 

INTRODUCTION 1 

DEBIT  AND  CREDIT 4 

DEBIT  AND  CREDIT  IN  THE  FUNDAMENTAL  BOOKS 7 

DEBITS  AND  CREDITS  TESTED  BY  THE  TRIAL  BALANCE 10 

DETERMINING  PROFIT  AND  Loss  FROM  THE  BOOKS 14 

CLOSING  THE  BOOKS 17 

THE  PRINCIPLES  OF  LABOR-SAVING  DEVICES: 

I.   SPECIAL  COLUMNS  AND  SPECIAL  BOOKS 20 

II.   CONTROLLING  ACCOUNTS  AND  DISCOUNTS 24 

BALANCE  SHEET  AND  INCOME  SHEET 32 

DEPRECLVTION  AND  RESERVES 38 

INTERPRETATION  OF  BALANCE  SHEETS 42 

THE  ELEMENTS  OF  COST  ACCOUNTING 47 

STATISTICS  IN  ACCOUNTING 49 

PRESENT  WORTHS  AND  AMOUNTS  OF  SINGLE  PAYMENTS  AND  OF 

ANNUITIES 51 

FINDING  THE  VALUE  OF  A  BOND 55 

AMORTIZATION  AND  ACCUMULATION 57 

LIFE-MAN'S  AND  REMAINDER-MAN'S  SHARES     59 

LEASES,  PATENTS,  AND  OTHER  ANNUITIES 60 

PURCHASE  AND  SALE  OF  BONDS 61 

ISSUE  OF  BONDS 63 

OPTIONAL-REDEMPTION  BONDS 64 

PRINCIPLES  OF  CAPITALIZATION 65 

RAILROAD  ACCOUNTS 67 

REORGANIZATIONS 72 

TRUST  ACCOUNTING 73 

INSURANCE  AND  LIFE  TENURES 74 

FACTORY  ACCOUNTING 76 

MUNICIPAL  ACCOUNTING 86 

THE  NATURE  OF  COMMERCIAL  DISCOUNTS 87 

THE  NATURE  OF  PROPRIETORSHIP  PROFITS 88 

CONSOLIDATIONS 89 

INSOLVENCY  SETTLEMENTS  91 


vi  CONTENTS 

APPENDICES 

A.  SPECIAL  FORMS  AND  BOOKS 93 

B.  SPECIAL  ENTRIES: 

I.  OPENING  CORPORATION  BOOKS 97 

II.  CLOSING  BY  JOURNAL  ENTRIES 99 

C.  SINGLE  ENTRY 101 

E.  PETTY  CASH  AND  VOUCHER  SYSTEMS  .                                      .  102 


PROBLEMS  IN  THE  PRINCIPLES 
OF  ACCOUNTING 

INTRODUCTION 

THE  problems  in  the  following  pages  have  been  prepared  to  afford 
students  ready  means  of  testing  with  actual  figures  their  knowl- 
edge of  accounting  principles. 

The  aim  is  in  only  slight  degree  to  afford  the  sort  of  mechanical 
practice  that  results  in  facility,  though  some  degree  of  facility  must 
spring  from  any  practice;  the  prime  aim  is  to  afford  material  on 
which  the  student  may  cultivate  the  power  and  the  habit  of  seeing 
straight,  of  seeing  deeply,  and  of  seeing  whole.  All  serious  account- 
ing work  requires  the  accountant  to  do  these  three  things :  first,  to 
see  the  surface  meaning  of  things;  second,  below  the  surface  facts 
to  see  the  underlying  facts;  third,  to  see  the  relations  of  all  the 
fundamental  facts  to  one  another.  Except  for  the  bookkeeping 
problems  —  in  which,  moreover,  the  aim  is  as  far  as  feasible  the 
same  as  in  the  accounting  problems,  —  the  exercises  following  are 
intended  to  demand  of  the  student  careful  observation  (to  show 
him  what  the  figures  mean),  or  the  application  of  some  analytical 
power  (to  tell  him  what  lies  below  the  surface),  or  sense  of  relation- 
ship (to  indicate  to  him  how  present  figures  are  tied  up  with  other 
figures) .  Many  of  these  problems  require  the  exercise  of  all  three 
of  these  faculties  at  once. 

Either  of  two  methods  is  feasible  for  the  choice  of  material  for 
exercises,  —  actual  figures  yielded  in  specific  business  enterprises, 
or  imaginary  figures  devised  to  call  into  play  certain  lines  of 
thought  on  the  part  of  the  student.  The  former  gives  the  student 
a  certain  degree  of  familiarity  with  actual  figures,  and,  if  a  sufficient 
number  of  cases  is  taken,  with  normal  figures;  but  a  very  large 
number  of  cases  is  usually  needed  to  cover  the  specially  note- 
worthy conditions,  for  few  sets  of  actual  figures  chance  to  combine 
many  notable  facts.  Then  so  much  of  the  student's  thought  is 
occupied  with  the  repetition  of  mechanical  processes  that  he  loses 
alertness  for  the  recognition  of  differences  in  principle.  When 


2       PROBLEMS  IN   THE  PRINCIPLES  OF  ACCOUNTING 

imaginary  sets  of  figures  are  taken,  on  the  other  hand,  each  may 
combine  several  notable  features  and  so  give  the  student  the 
maximum  opportunity  for  the  use  of  his  intelligence  with  the  mini- 
mum expenditure  of  time  in  examining  and  recording  conditions 
that  are  already  an  old  story  to  him.  To  a  great  extent,  therefore, 
resort  is  made  here  to  imaginary  sets  of  figures,  and  no  care  is  taken 
to  avoid  the  unusual  circumstance;  for  always  enough  of  any  set 
of  figures  is  normal  to  give  the  student  familiarity  with  the  appear- 
ance of  normality,  and  to  give  him  practice  both  in  identifying  the 
unusual  thing  in  the  midst  of  normal  things  and  in  seeing  its  bear- 
ings analytically  and  synthetically.  To  say  of  any  set  of  figures, 
then,  that  it  represents  a  very  unusual  situation  is  not  to  say  that  it 
is  not  worthy  of  study,  but  may  be  to  say  that  it  is  most  useful 
because  one  can  see  in  it,  in  full  effect,  the  virtue  or  the  evil  of  some 
important  accounting  theory  or  practice.  Just  as  one  in  common 
talk  can  often  best  make  clear  one's  point  by  an  illustration  intrin- 
sically absurd,  so  one  can  often  show  most  clearly  an  accounting 
principle  by  figures  intrinsically  improbable. 

This  would  not  be  true  if  the  aim  in  teaching  accounting  were  to 
teach  specific  facts  about  business,  or  specific  methods  of  procedure 
for  certain  kinds  of  circumstance.  No  one  can  ever  understand 
accounting  by  learning  how  specifically  to  do  specific  things.  The 
conditions  and  the  happenings  and  the  modifying  circumstances  of 
modern  business  are  so  multitudinous  that  no  lifetime  is  long 
enough  for  one  to  learn  by  rule  what  should  be  done  in  every  kind 
of  case.  Accounting  is  nothing  but  sublimated  common  sense 
applied  to  interpreting  the  facts  of  business.  The  requisite  for 
accounting  is  simply  intellectual  vision  with  the  ability  to  express 
the  truth  intelligibly.  Such  vision  and  such  power  of  expression 
are  best  cultivated  by  practice  in  handling  not  merely  the  usual 
and  stable  (certainly  not  merely  because  they  are  usual  and 
stable),  but  rather  the  peculiar  and  the  unique,  for  these  force  the 
student  to  work  out  for  himself  methods  and  processes  that  may 
be  capable  of  numerous  applications  in  circumstances  which, 
though  on  their  faces  they  are  wholly  unlike,  are  in  essence  of  the 
same  sort. 

These  problems  have  been  designed  for  use  with  the  author's 
"  Accounts:  Their  Construction  and  Interpretation,"  published 
by  Houghton  Mifflin  Company,  of  Boston.  They  therefore  follow 
the  same  order  of  treatment  of  subjects  as  that  book,  which,  though 


INTRODUCTION  3 

it  appears  to  give  much  discussion  of  specific  lines  of  business,  does 
so  only  in  order  that  it  may  illustrate  the  fundamental  principles  of 
accounting  in  the  fields  where  they  may  be  most  profitably  studied. 
At  the  head  of  each  group  of  problems  in  the  following  pages  is 
given,  for  the  convenience  of  those  using  that  book,  the  designa- 
tion of  a  passage  in  which  are  discussed  the  principles  involved  in 
the  problem.  All  but  a  few  of  these  problems  are  possible  of  solu- 
tion by  persons  familiar  with  accounting  principles  but  unfamiliar 
with  that  text :  the  few  exceptions  will  be  sufficiently  obvious;  they 
follow  some  suggestions  for  accounting  methods  not  at  present  in 
general  practice.  In  the  main,  all  work  is  cumulative:  the  refer- 
ences given  for  each  set  of  problems  presuppose  that  all  previous 
references  are  familiar  to  the  student.  One  should  not  expect  to 
pick  a  problem  at  random  and  merely  by  consulting  the  reference 
cited  in  connection  with  that  problem  learn  how  to  solve  it.  To 
large  degree  the  work  is  a  unified  whole,  and  often  the  treatment  of 
the  peculiarities  of  one  distinct  type  of  business  is  made  to  hinge  on 
the  previously  discussed  peculiarities  of  another  type  in  many  re- 
spects wholly  unlike  it.  For  students  who  desire  to  get  a  compre- 
hensive grasp  of  fundamental  principles,  this  is  the  most  economical 
procedure. 


DEBIT  AND  CREDIT 

[Chapter  II l] 

1  The  references  are  to  the  author's  Accounts:  Their  Construction  and  Inter- 
pretation: Revised  and  Enlarged  Edition. 

1 

Determine  for  the  following  transactions  whether  the  account 
named  in  parenthesis  is  to  be  debited  or  to  be  credited.  For  the 
purpose  of  testing  the  correctness  of  your  work,  list  all  the  debits 
in  one  column  and  all  the  credits  in  another,  and  then  compare  the 
totals  with  the  cue  given  at  the  end  of  the  problem. 

(a)  Receiving  cash  for  a  debt  due  to  the  business  (Cash), 
$2,500. 

(6)  Selling  merchandise  (Merchandise),  $2,400. 

(c)  Receiving  a  promissory  note  in  payment  of  a  debt  due  to  the 

business  (Bills  Receivable),  $2,450. 

(d)  Paying  John  Smith  $2,333  owed  to  him  (John  Smith). 

(e)  Paying  $2,267  in  cash  for  wages  (Cash). 

(/)   Buying  merchandise  for  $2,250  (Merchandise). 

(g)  Receiving  cash  for  interest  due  to  the  business  (Interest), 

$148. 

(h)  Paying  $297  for  commission  (Commission). 
(i)   Buying  an  office  safe  for  $318  (Office  Furniture), 
(j)   Paying  $46  for  postage  (Postage). 
(k)  Selling  merchandise  for  $326  (Merchandise). 
(0    Receiving  of  John  Brown  a  loan  of  $1,583  (John  Brown), 
(ra)  Paying  rent  (Cash),  $158. 
(n)  Borrowing  $1,265  on  a  promissory  note  of  the  business  (Bills 

Payable). 

(6)  Paying  $140  for  expenses  (Cash). 
(p)  Paying  debts  of  the  business  (Cash),  $5,104. 
(q)  Receiving  $4,457  due  to  the  business  (Cash). 
(r)   Receiving  from  John  Robinson  $4,950  owed  by  him  to  the 

business  (John  Robinson). 
(s)  Paying  expenses  (Expense),  $2,425. 
(t)   Borrowing  on  a  note  (Cash),  $1,265. 

[The  total  of  each  column,  debit  and  credit,  should  be  $18,341.] 

4 


DEBIT  AND   CREDIT 


For  the  following  transactions  determine  —  regarding  both  the 
debit  and  the  credit  —  whether  the  entry  should  be  made  to  a 
property  account,  a  force  account,  or  a  personal  account.  Then 
provide  for  six  columns  as  follows:  Property,  Dr.;  Property,  Cr.; 
Force,  Dr.;  Force,  Cr.;  Personal,  Dr.;  Personal,  Cr.  For  each 
transaction  below  enter  the  amount  in  one  debit  column  and  one 
credit  column  —  corresponding  to  the  proper  debit  and  the  proper 
credit  to  be  made  for  the  two  accounts  concerned  in  the  trans- 
action. Then  compare  your  totals  with  the  cue  given. 

(a)  Buying  merchandise  for  cash,  $3,215. 

(b)  Receiving  a  promissory  note  for  a  debt  due  to  the  business 

by  a  customer,  $1,367. 

(c)  Paying  wages  in  cash,  $873. 

(d)  Buying  merchandise  on  credit,  $2,792. 

(e)  Selling  for  somebody  else  goods  on  which  you  are  allowed  a 

commission  of  $326  (now  to  be  entered  on  the  books  as 
due  to  you). 

(/)  Setting  off  against  an  amount  due  to  you  by  one  of  your  cus- 
tomers interest  on  money  borrowed  by  you  from  that  cus- 
tomer, $139. 

(g)  Incurring  a  bill  for  advertising,  $75. 

(h)  Buying  real  estate  for  cash,  $8,500. 

(i)   Receiving  cash  for  rent  on  a  building  owned,  $300. 

(j)  Retaining,  as  a  loan  from  employees,  wages  already  earned 
by  employees  but  not  previously  entered  as  earned  or 
paid,  $680. 

(k)  Paying  for  merchandise,  which  was  previously  bought  and 
entered  to  the  account  for  merchandise  and  to  that  for 
the  firm  of  whom  it  was  bought,  $1,634. 

[The  property  debits  should  be  $16,174;  property  credits, 
$14,222;  force  debits,  $1,767;  force  credits,  $626;  personal  debits, 
$1,960;  personal  credits,  $5,053.] 


6       PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 


The  following  pairs  of  debits  and  credits  were  made  as  a  result  of 
certain  transactions.  Analyze  each,  assuming  that  the  name  used 
for  each  account  sufficiently  indicates  the  nature  of  that  account, 
and  show  the  final  net  result  of  all  transactions,  on  (a)  the  amount 
of  property  in  the  business,  (6)  the  loss  or  gain  of  the  business,  (c) 
the  claims  against  it  or  in  its  favor. 

Debit  Amount  Credit 

Merchandise   $1,312 John  Smith 

Wages 259 Cash 

John  Brown 518 Commission 

Wages 90. .. John  White 

Cash 834. .. John  Robinson 

Interest    108 Cash 

Rent 200 Interest 

John  Smith   1,000 Cash 

Commission 85 Cash 

John  Jones 75 Interest 

Cash 327 John  Jones 

[The  increase  in  property  is  $1,021,  the  net  gain  is  $51,  and  the 
increase  in  liabilities  (or  decrease  in  favorable  claims)  is  $970.] 


DEBIT  AND  CREDlf  IN  THE  FUNDAMENTAL 

BOOKS 

[Chapters  III  and  IV] 
4 

Make  entries  in  simple  journal  form,  for  the  following  transac- 
tions, assuming  that  the  items  before  January  11  are  on  page  15  of 
the  journal  and  that  later  items  are  on  page  16.  Then  post  these 
entries,  giving  a  different  page  number  to  each  ledger  account  by 
beginning  with  page  25  for  the  first  debit,  taking  page  26  for  the 
first  credit,  page  27  for  the  second  debit,  etc. ;  but,  of  course,  carry 
a  second  posting  for  the  same  account  to  the  same  page  number. 

Jan.  1.   The  proprietor  invested  cash  in  the  business,  $5,000. 

Jan.  4.   Paid  in  cash  one  month's  store  rent,  $100. 

Jan.  6.   Bought  for  cash,  500  barrels  of  flour  at  $5.00  per  barrel. 

Jan.  8.  Sold  George  Spring  &  Company,  on  account,  55  barrels 
of  flour  at  $6.00  per  barrel. 

Jan.  10.  Bought  of  William  Winter,  on  account,  100  bushels  of 
corn  at  35^  a  bushel. 

Jan.  15.  Sold  to  James  Summers,  on  account,  10  barrels  of  flour 
at  $5.80  per  barrel. 

Jan.  18.  Taid  wages  of  clerk,  $12. 

Jan.  22.  (Received  rent  for  desk-room  in  office,  $25. 

Jan.  26.   Paid  $40  for  a  harness  for  delivery  equipment. 

Jan.  27.  Received  from  George  Spring  &  Company  their  note 
for  $330,  for  their  bill  of  Jan.  8. 

Jan.  29.  Borrowed  $2,000  on  a  note  of  the  business  for  $2,000. 

[The  following  should  be  the  totals  of  the  ledger  accounts : 

Page  Dr.  Cr. 

25 $7,025  $2,652 

26     5,000 

271    100  25 

1  The  student  may  find  that  his  page  27  includes  what  is  here  given  sepa- 
rately on  32,  and  that  the  $25  here  included  in  page  27  is  carried  by  him  sepa- 
rately. If  so,  his  page  numbers  will  be  obviously  affected. 


8       PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 

Page  Dr.  Cr. 

28     $2,535  $388 

29     330  330 

31     58 

32     12 

33     40 

34     330 

35     2,000] 


Show  by  journal  entries  what  should  be  debited  and  what 
credited  on  the  books  of  Arthur  and  on  the  books  of  Burt  for  the 
following  transactions,  when  6  %  is  assumed  as  a  fair  rate  of  in- 
terest : 

(a)  Arthur  lends  Burt  in  cash  the  value  of  a  promissory  note  for 
$1,000,  payable  in  four  months,  and  bearing  interest. 

(6)  Burt  pays  the  above  note  at  maturity. 

(c)  Arthur  again  lends  Burt  cash  on  a  note,  but  this  note,  though 
for  the  same  amount  and  with  the  same  term,  does  not  bear  in- 
terest. 

(d)  Burt  pays  the  above  note  at  maturity. 

(e)  Arthur  sells  Burt  merchandise  for  $1,000,  with  payment  due 
in  two  months;  Burt  gives  in  part  payment  his  note  for  $500,  due 
in  two  months. 

(/)  When  the  balance  of  Burt's  bill  is  due,  he  obtains  from 
Charles  a  $500  promissory  note,  payable  two  months  in  the  future 
but  dated  two  months  in  the  past,  and  bearing  interest;  this  note 
he  delivers  to  Arthur;  then  Burt  pays  his  own  note  previously 
given  Arthur;  any  balance  due  one  or  the  other  party  in  the  settle- 
ment is  paid  in  cash. 

(g)  Charles  pays  the  above  note  at  maturity. 

(h)  Burt  buys  $500  worth  of  merchandise  of  David  on  account. 

(i)  David  draws  a  $500  draft  on  Burt  (which  Burt  accepts)  and 
gives  it  to  Arthur  in  payment  for  goods  —  both  the  goods  and  the 
draft  requiring  payment  in  one  month. 


FUNDAMENTAL  BOOKS  9 

(j)  At  the  maturity  of  the  above  draft,  Arthur  buys  some  land  of 
Burt  for  $500,  and  Burt  tells  Arthur  in  payment  to  send  Burt's  own 
acceptance  to  Charles;  when  this  is  done,  Charles  presents  it  for 
payment,  and  Burt  pays  it,  with  interest  of  $15  on  Charles's  loan 
to  him. 

Post  these  items  to  Arthur's  ledger  and  to  Burt's  ledger. 

[Arthur's  ledger  will  show  a  net  credit  to  Interest  of  $45,  and 
Burt's  will  show  a  net  debit  of  $50.  Arthur's  Bills  Receivable  will 
have  total  debits  and  credits  of  $3,500  each,  and  Burt's  Bills  Re- 
ceivable will  be  square  at  $500,  and  his  Bills  Payable  at  $3,000. 
Arthur's  cash  will  have  increased  $1,045,  and  his  real  estate  $500; 
and  his  merchandise  will  be  credited  $1,500.  Burt's  cash  will  show 
a  decline  of  $1,050,  and  his  real  estate  and  merchandise  the  reverse 
of  Arthur's.! 


DEBITS  AND  CREDITS  TESTED  BY  THE 
TRIAL  BALANCE 

[Chapter  V  to  page  39] 
6^ 

Post  the  following  items  to  the  ledger,  find  the  final  balances  of 
all  ledger  accounts,  and  take  a  trial  balance  of  those  balances. 


November  1 

Cash    $7,500.00 

To  Proprietor 

2 

Mdse.    3,000.00 

To  Cash   . 


Customers  . . . 
To  Mdse. 

Proprietor  . . . 
To  Cash 


57.60 


50.00 


$7,500.00 

3,000.00 
57.60 
50.00 


Cash 


To  Mdse. 


100.00 


100.00 


Mdse 

To  Creditors 


137.00 


137.00 


Creditors  . . . 
To  Cash 


Mdse 

To  Creditors 


77.50 


65.30 


77.50 


65.30 


10 


TRIAL  BALANCE 

6 

Customers 475.25 

ToMdse 475.25 

Cash    29.70 

To  Customers    29.70 

Mdse 500.00 

To  Creditors 500.00 

8 

Customers 320.00 

ToMdse 320.00 

Proprietor 28.00 

To  Cash    28.00 

Customers 17.50 

ToMdse 17.50 

[The  total  of  the  trial  balance  should  be  $8,046.80.] 


11 


Enter  the  following  transactions  in  the  journal,  post  them,  and 
take  a  trial  balance. 

You  as  proprietor  invest  $10,000  La  cash,  and  $5,000  in  notes 
bearing  interest  (with  interest  already  accrued  to  the  amount  of 
$28). 

Buy  goods  of  T,  on  account,  $3,000. 

Pay  $600  for  stationery. 

Sell  B  goods,  on  account,  $3,000. 

Pay  T,  $1,000. 

Receive  of  B  his  note  for  $2,000. 

Buy  goods  of  S,  $7,000;  give  note  for  $5,000,  and  pay  $2,000 
in  cash. 

Pay  personal  tailor's  bill  out  of  the  cash  drawer,  $100. 

Buy  goods  of  R,  on  account,  $10,000. 


12      PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 

The  notes  invested  by  you  are  paid,  with  interest,  the  total 

amounting  to  $5,050. 
Pay  note  given  S,  with  interest,  $50. 
B  pays  cash,  $1,000. 
Give  to  T  the  note  of  B  which  you  hold. 
Lend  A  $4,975  on  his  note  for  $5,000  due  in  30  days. 
How  do  your  affairs  now  stand,  according  to  the  books,  with 

T,  B,  S,  and  R  ?    Is  this  as  it  should  be  ? 

[The  total  of  the  trial  balance  of  ledger  balances  should  be 
$24,928,  or  $100  more  if  a  separate  account  is  kept  for  proprietor's 
drawings.] 


8 

Journalize  the  following  transactions,  post,  and  take  a  trial 
balance. 

Invest  in  business  as  follows:  cash,  $10,000,  and  notes  of  F, 
$6,000,  not  bearing  interest,  worth  $5,900  when  discount  is  allowed 
for. 

Buy  merchandise  of  B  on  trust,  $18,000. 

Pay  B  $6,000  cash,  and  give  him  your  own  note,  bearing  interest, 
for  $12,000. 

Sell  to  C  merchandise,  $1,000  payable  in  one  month,  and  receive 
from  C  his  note  for  $1,000,  payable  in  two  months,  and  cash, 
$5.00. 

$2,000  is  collected  on  notes  of  F. 

Sell  merchandise  to  C  for  $13,000,  and  get  in  payment  notes  for 
$12,800,  bearing  interest,  with  interest  accrued  to  the  amount  of 
$200. 

Take  up  note  given  to  B,  now  amounting  with  interest  to 
$12,100,  and  give  in  payment  some  of  the  notes  received  from  C, 
$11,800,  with  interest  accrued  to  the  amount  of  $300. 

Pay  wages  by  cash  realized  from  discounting  at  a  bank  your  own 
note  for  $500,  payable  in  30  days. 

[The  total  of  the  trial  balance  of  ledger  balances  should  be 
$16,502.50.] 


TRIAL  BALANCE  13 

9 

Write  the  following  transactions  in  journal  form,  post  them,  and 
take  a  trial  balance. 

Nov.  21.   Partner  A  invests  $10,000  cash. 

Nov.  21.  Partner  B  invests  bonds  worth  $9,500,  with  interest 
accrued  to  the  amount  of  $20,  and  office  furniture  and  equipment 
worth  $480. 

Nov.  22.  We  give  a  second-hand  office  typewriter,  supposed  to 
be  worth  $50,  in  payment  for  advertising  in  the  program  of  an 
exposition. 

Nov.  23.  We  sell  goods  for  another  firm,  and  earn  a  commission 
of  $25;  but  as  Partner  A  owes  that  firm  interest  amounting  to  $25, 
the  two  firms  agree  to  set  one  debt  off  against  the  other. 

Nov.  24.   We  buy  goods  of  Green  &  Bros.,  $2,000. 

Nov.  25.  We  sell  goods  to  Delay  &  Co.  for  $350,  and  they  pay 
$200  on  account. 

Nov.  26.   We  seU  goods  to  Gray  &  Son  for  $2,000. 

Nov.  28.  We  exchange  the  bonds  which  B  invested,  $9,500  at 
par,  with  interest  accrued  at  $23,  and  merchandise  at  $772,  and 
cash  $1,200,  for  a  building  worth  $11,500. 

Nov.  29.  For  Brown  &  White  we  sell  property  amounting  to 
$6,000,  and  collect  the  cash  from  the  purchaser;  we  are  entitled  to 
a  commission  of  $450;  but  we  pay  bills  for  advertising,  preparatory 
to  the  sale,  amounting  to  $45  (not  chargeable  to  Brown  &  White), 
and  for  transfer  and  record  fees  amounting  to  $25  (chargeable  to 
them). 

Nov.  30.  Green  &  Bros,  draw  on  us  a  draft  payable  to  Gray 
&  Son  for  $2,000.  By  agreement  with  Gray  &  Son,  we  cancel 
their  debt  to  us  in  exchange  for  the  draft. 

If  the  inventory  of  merchandise  is  $28,  and  no  business  has  been 
done  but  that  indicated  here,  what  is  the  profit  or  loss  for  merchan- 
dise, for  interest,  for  commission  ? 

[The  total  of  the  trial  balance  of  ledger  balances  is  $27,105;  the 
combined  profit  of  merchandise,  interest,  and  commission  is 
$1,633:  but  if  the  second  advertising  item  ($45)  is  charged  to 
Commission,  the  total  of  both  the  trial  balance  and  the  profit 
accounts  will  be  less  than  the  amount  given.  The  reason  for 
charging  the  special  advertising  to  general  advertising  in  this  case 
is  that  it  is  presumed  to  have  an  effect  of  general  publicity.] 


DETERMINING  PROFIT  AND  LOSS  FROM  THE 

BOOKS 

[Chapter  V,  pages  40-45] 

10 

Balances  are  found  on  ledger  accounts  as  follows : 

Proprietor    $50,000 

Bills  Receivable    18,000 

Bills  Payable 8,000 

Real  Estate   35,000 

Cash  3,000 

Wages 8,000 

Expense   2,000 

Merchandise 8,000 

^ 

The  following  inventories  are  given: 

Real  Estate  $33,000 

Expense  (supplies)   500 

Merchandise    10,000 

The  following  item  is  found  accrued  but  not  due: 

Wages  liability   $750 

Construct  the  six-column  statement,  and  show  the  proof. 

[The  total  of  the  liability  column  is  $58,750,  and  of  the  loss 
column  is  $12,250.  (Those  who  use  a  different  form  of  statement, 
omitting  the  proprietor's  credit  balance  from  the  liabilities,  will 
have  a  correspondingly  reduced  figure  for  the  liability  column.)] 


11 

Show  and  prove  the  six-column  statement  for  the  figures  on 
the  following  page. 

14 


PROFIT  AND  LOSS 


15 


Ledger  totals 

Dr.  Cr. 

Cash $175,000  $170,000 

Merchandise 138,000  128,000 

Customers l 148,000  126,000 

Creditors 1 137,000  141,000^ 

Real  Estate 35,000  2,000 

Fixtures 8,000  1,000 

Depreciation 4,000 

Expense 23,000 

Interest 1,500  500 

Commission    1,000  2,000 

Proprietor 100,000 

$670,500  $670,500 

Inventories 

Merchandise   $57,000 

Supplies  200*r 

Accrued  items 

Interest  earned $200 

Commission  liability    100 


Prepaid  items 
Insurance  (charged  to  Expense)  .... 


$100 


[Total  of  liability  column,  $104,100;   of  gam  column,  $47,900. 
(See  the  notation  in  the  cue  to  Problem  10.)] 

1  Totals  of  all  such  accounts. 


16      PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 

12 

Fill  out  the  following  incomplete  six-column  statement,  using  no 
figures  not  given  or  implied,  and  prove  it. 

Gain 


Dr. 

Cr. 

Resources 

Liabilities 

Loss 

Cash          

$20,000 

Office  Furniture     . 

$3,000 

.... 



$500 

13,000 

13,000 

Interest        . 

500 

Bills  Receivable     . 

.... 

5,000 

Bills  Payable      . 

.... 

.... 

.... 

$2,000 

Customers   .... 

3,000 

Creditors     .... 

.... 

$1,000 

Merchandise   .    .    . 

20,000 

.... 

.... 

.... 

..:. 

Capital  Stock  .    .    . 

$50 


21,000 


[The  net  gain  is  $7,550.] 


CLOSING  THE  BOOKS 

[Chapter  V,  pages  45-56] 

13 

Construct  a  ledger  to  show  the  balances  given  in  Problem  10. 
Then  make  the  additional  ledger  entries  for  closing  the  books  at  the 
end  of  the  year,  as  indicated  in  the  problem,  close  the  ledger,  and 
show  the  balance  sheet. 

[The  total  of  the  balance  sheet  will  be  $64,500.] 


14 

Construct  a  ledger  to  show  the  balances  given  in  Problem  11. 
Then  make  the  additional  entries  for  closing  the  books,  as  indi- 
cated in  the  problem,  close  the  ledger,  and  show  the  balance  sheet. 

[The  total  of  the  balance  sheet  will  be  $124,500.] 


15 

On  the  information  given  below,  make  a  six-column  statement, 
close  the  ledger,  divide  profits  equally  between  partners,  and  show 
the  balance  sheet. 

Ledger  balances 

Proprietor  A     $57,000 

Proprietor  B     25,000 

Bills  Payable 19,000 

Bills  Receivable 27,000 

Customers 20,000 

Creditors 25,000 

Real  Estate 45,000 

Mdse.,  credit 4,000 

Commission,  credit 3,000 

Interest,  debit 1,000 

Wages,  debit 35,000 

Expense 5,000 

17 


18      PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 

Additional  facts 

Real  estate  valuation   $44,500 

Mdse.,  valuation 51,000 

Commission  accrued  against  firm 1,000 

Interest  accrued  in  favor  of  firm 500 

Wages  accrued  against  firm     500 

Expense  (taxes)  accrued 500 

[The  total  of  the  balance  sheet  should  be  $143,000.] 


16 

Certain  accounts  on  a  trial  balance  are  as  follows: 

Interest  $500 

Commission    $1,300 

Wages   13,500 

Insurance    300 

Rent 600 

Stationery 400 

Taxes 200 

Sales 140,000 

Purchases    100,000 

Depreciation 6,000 

Advertising 1,000 

The  inventory  of  merchandise  at  the  beginning  of  the  year  was 
$20,000  (not  included  in  the  purchases  above),  and  it  is  now 
$25,000.  When  the  books  were  last  closed  the  proprietor  had  a 
credit  of  $50,000,  but  nothing  has  been  invested  or  withdrawn  by 
him  since  that  time.  If  the  books  were  now  to  be  closed,  assuming 
that  the  correct  figures  for  all  nominal  accounts  have  been  given 
above,  how  should  you  show  on  the  proprietor's  account  his  present 
credit  ? 

[The  proprietor's  credit  is  actually  $75,000.] 


CLOSING  THE  BOOKS  19 

17 

In  closing  books  at  the  end  of  a  year  what  allowance,  if  any, 
should  be  made  for  interest  and  for  discount  on  each  of  the  notes 
below  ?  Assume  notes  bearing  interest  to  have  run  two  months 
and  others  to  have  two  months  yet  to  run,  and  that  the  rate  of 
interest  to  be  used  is  6  %. 

Bills  receivable  No.  120  bearing  interest  $1,000 

Bills  receivable  No.  127  without  interest  2,000 

Bills  payable     No.    74  without  interest  3,000 

Bills  payable     No.    84  bearing  interest  4,000 

What  is  the  effect  on  the  balance  sheet  ? 
[Net  effect  —  shrinkage  of  net  assets,  $20.] 


THE   PRINCIPLES   OF   LABOR-SAVING  DEVICES,   I 

SPECIAL  COLUMNS  AND  SPECIAL  BOOKS 

[Chapter  VI,  pages  57-66] 

18 

Study  the  following  four  imaginary  pages  of  books  of  account, 
determine  what  each  page  represents  as  a  whole,  then  interpret 
each  item  on  each  page,  find  any  relation  that  may  exist  between 
any  item  on  one  page  and  any  item  on  any  other  page,  post  all 
items  that  should  be  posted,  and  take  a  trial  balance  of  these  items. 
(Such  a  trial  balance  will  be  abnormal,  for  it  will  show  peculiar 
balances  of  certain  accounts;  but  since  it  is  taken  simply  as  a  test 
of  certain  isolated  entries,  it  serves  its  purpose  in  spite  of  pecu- 
liarities.) 

I 

$3,000 
2,500 
5,000 
500 
3,000 


Proprietor Investment  . . . 

J.  White Shipment,  10/3 

Bills  Payable  . .  .Our  note,  with  interest 

Mdse    Cash  sales  for  the  day 

Real  Estate  . . .  .House  lot,  Y  St.,  sold 

CashDr s 

Balance  .  .  .     $8,765 


$14,000 


II 


H  Green 

Invoice,  9/5  

Freight 

Ex- 
pense 

$5,000 

Interest 

On  $  54  paid 

50 

Expense  . 
Freight 

.  .Stationery  bill,  S.  W.  Co. 
On  Inv.  #  649  

$50 

$100 

Expense 

Cleaning    , 

10 

Freight 

On  Inv    $  653 

25 

Expense  . 

$110 

110 

Freight 

$75 

75 

Cash  Cr. 

$5,235 

Balance    . 

$8,765 

•* 

$14,000 

20 


LABOR-SAVING  DEVICES 
III 


21 


Cash 

$500 

P.  Brown 
16  doz.  #25  4°° 

$64 

2    "      #38                             10°° 

20 

84 

G.  Grey 
20  doz.  #15  7°° 

140 

Mdse.  Cr. 

$724 

IV 

H.  Bkck 
Inv.  #76  

$275 

B.  Dunn 
Inv.  #77      

125 

Mdse.  Dr  

$400 

[Sixteen  postings  required.      Total  of  trial  balance  of  ledger 
balances,  $14,224.] 


19 

The  following  is  a  page  of  a  book: 


Jan.  1 


A.  Andrews  .  .. 
Bills  Receivable 

His  invoice,  Dec.  1  .  . 
No   127  paid  

$500  00 

$615.10 

Bills  Payable 

No   19  discounted 

1000  00 

Merchandise  «  • 

Cash  sales  

mOft 

Bills  Receivable 

No   116  paid  

123  50 

Insurance    
Bills  Receivable 

Premium  ret'd  on  policy 
No   139  paid 

.... 

312  26 

73.23 

Bills  Receivable 

$935  76 

935  76 

Cash   Dr 

2  797  37 

fto  707  07 

$4,344.67 

22      PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 

Note  fully  what  transactions  are  here  recorded.  What  post- 
ings should  be  made,  and  to  which  side  of  each  account  ?  If 
any  figures  are  not  to  be  posted,  why  not  ? 

[Six  postings,  or  five?  Total  amount  to  be  posted,  $5,421,46, 
or  $5,594.74  ?] 


20 

Enter  the  following  transactions  in  the  proper  books,  post,  and 
take  a  trial  balance. 

May    1.   Begin  a  general  grocery  business  today,  investing  cash, 
$4,000. 

May    2.   Pay  store  rent  in  cash,  one  month,  $60. 

May    3.   Buy  for  cash,  200  bu.  potatoes  @  $.80;  400  Ibs.  butter 
@  $.25. 

May    4.   Buy  of  John  Randolph,  on  account,  60  bbls.  flour  @  $4 ; 
*  20  bbls.  salt  @  $1.50;   175  Ibs.  lard  @  $.10. 

JT)       May    5.   Sell  Alexander  Hamilton  for  cash,  10  bbls.  flour  @ 
$4.50;  45  bu.  potatoes  @  $.80;  2  bbls.  salt  @  $1.75. 

May    6.   Sell  Benjamin  Harrison,  on  account,  100  Ibs.  lard  @ 
$.12;  110  Ibs.  butter  @  $.30;   10  bbls.  flour  at  $4.50. 

May    8.   Buy  for  cash  a  set  of  books  for  office  use,  $15. 

May    9.   Pay  John  Randolph  cash,  on  account,  $56.40. 

May  10.   Receive  cash  of  Benjamin  Harrison,  on  account,  $50. 
.^      May  11.   Buy  of  James  Otis,  on  account,  5  bbls.  flour  @  $3.50; 
600  Ibs.  of  lard®  $.08;  500  Ibs.  butter  at  $.20;  250  bu.  potatoes  @ 
$.70. 

May  12.   Sell  John  Hancock,  on  account,  12  bbls.  flour  @  $4; 
100  Ibs.  lard  @  $.10;   100  Ibs.  butter  @  $.22. 

May  13.   Sell  Benjamin  Harrison,  on  account,  70  bu.  potatoes 
@  $.75;  6  bbls.  salt  @  $1.70;   100  Ibs.  lard  @  $.12. 

May  15.   Receive  cash  of  John  Hancock,  on  account,  $52.50; 
pay  James  Otis  cash,  on  account,  $195. 

May  16.   Buy  of  John  Randolph,  on  account,  40  bbls.  flour  @ 
$3.50. 

May  17.   Sell  Benjamin  Harrison,  on  account,  16  bbls.  flour  @ 
$4;  100  Ibs.  lard  @  $.11. 

May  18.   Give  John  Randolph  your  note  for  goods  bought  on 
^     the  16th;  sell  Robert  Morris  for  cash,  20  bbls.  flour  @  $4.10;  212 
Ibs.  butter  @  $.20;  60  bu.  potatoes  @  $.77. 


LABOR-SAVING  DEVICES  23 

39* 

May  20.  Sell  John  Hancock,  on  account,  10  bbls.  flour  @  $3.98; 
100  Ibs.  lard  @  $.11;  100  Ibs.  butter  @  $.20;  10  bbls.  salt  @ 
$1.68. 

May  22.  Sell  George  Clinton  for  cash,  100  Ibs.  lard  @  $.10;  sell 
for  cash,  20  bu.  potatoes  @  $.75. 

May  26.  John  Hancock  settles  his  bill  of  the  20th;  pay  your 
note  in  favor  of  John  Randolph. 

May  28.   Pay  clerk  for  one  month,  cash,  $40. 

[The  entries  to  the  receipts  side  of  the  cash  book  should  amount 
to  $4,470.20;  to  the  disbursements  side,  $766.40;  to  the  sales 
book,  $687.40;  to  the  purchase  book,  $1,028;  to  the  journal, 
$140.  The  trial  balance  of  ledger  balances  gives  a  total  of 
$4,464.20.] 


,  ••  - 

^         't»t  6*7 

/ 


THE    PRINCIPLES    OF    LABOR-SAVING    DEVICES,    II 

CONTROLLING  ACCOUNTS  AND  DISCOUNTS 

[Chapter  VI,  pages  6&-80] 

21 

Enter  the  following  transactions  in  a  journal,  a  sales  book,  a 
special-column  cash  book  (all  expenses  to  be  carried  to  one  expense 
account),  post  to  a  sales  ledger  and  a  general  ledger,  and  take  a 
trial  balance. 

The  proprietor  invests  $15,000  worth  of  merchandise  and  $5,000 
in  cash. 

Rent  is  paid,  $300;  postage,  $20;  stationery,  $50. 

Goods  are  sold  to  Brown  for  $1,000,  to  Gray  for  $800,  to  White 
for  $2,000,  to  cash  customers  for  $1,500. 

Wages  are  paid,  $200. 

Cash  is  received  from  Brown,  $1,000;  from  Gray,  $800;  from 
White,  $1,000. 

The  proprietor  draws  $100  for  his  personal  use. 

[The  total  number  of  postings  to  the  general  ledger,  including 
cash,  is  ten,  —  two  from  the  journal,  six  from  the  cash  book,  two 
from  the  sales  book.  The  total  of  the  trial  balance  of  ledger  bal- 
ances is  $19,900.] 


22 

The  following  transactions  are  to  be  entered  in  complete  form, 
with  full  details  and  index  references;  the  resulting  figures  are  to 
be  carried  through  a  six-column  statement;  the  books  are  then  to 
be  closed  as  for  the  end  of  a  year,  and  a  balance  sheet  for  the  begin- 
ning of  the  new  year  is  to  be  shown. 

The  books  to  be  used  are  a  journal,  a  special-column  cash  book, 
a  sales  book,  a  purchase  book,  a  sales  ledger,  a  purchase  ledger, 
and  a  general  ledger.  When  insufficient  details  for  a  complete 
record  of  sale  or  other  entry  are  given  below,  reasonable  details 

24 


LABOR-SAVING  DEVICES  25 

are  to  be  assumed.     Six  per  cent  should  be  used  for  interest  and 
discount. 

The  closing  inventory  of  merchandise  is  $35,000.  In  determin- 
ing and  recording  profit,  care  should  be  taken  that  all  necessary 
additional  facts  are  considered. 

Ethan  Allen,  Ambrose  Burnside,  and  George  Ouster  form  a 
partnership  (A.  B.  C.  Co.)  on  January  1,  and  take  over  the  assets 
and  liabilities  of  the  business  of  Ethan  Allen,  who  is  given  credit 
for  the  net  assets  of  his  business  as  shown  by  his  books.  Ambrose 
Burnside  contributes  $20,000  worth  of  merchandise,  and  George 
Custer  contributes  a  note  of  George  Thomas,  face  $20,000,  dated 
January  1,  running  four  months  with  interest.  The  partnership 
agreement  provides  monthly  salaries  for  partners  as  follows: 
Ethan  Allen,  $1,000;  Ambrose  Burnside,  $500;  and  George 
Custer,  $300.  It  provides  that  5%  interest  shall  be  credited  to 
each  partner  on  his  capital  investment.  Profits,  after  partners' 
salaries  and  interest  have  been  provided  for,  shall  be  divided 
equally. 

On  January  1,  the  books  of  Ethan  Allen's  business  show  the 
following  items:  Building,  $100,000;  Equipment,  $2,000;  Ac- 
counts Receivable,  $4,900  (Philip  Sheridan,  $31400,  due  January 
20;  Horatio  Gates,  $1,500,  due  January  10) ;  BUls  Receivable, 
$13,500  (William  Sherman,  $4,000,  dated ,  December  15,  one 
month;  Thomas  Jackson,  $6,500,  dated  December  1,  two  months; 
Robert  Lee,  $3,000,  dated  November  1,  payable  on  demand  with 
interest);  Merchandise  (on  hand),  $11,000;  Cash,  $5,330;  Office 
Supplies  (on  hand),  $274;  Insurance  (prepaid  to  July  1),  $800;  Ac- 
counts Payable,  $5,000  (Anthony  Wayne,  $5,000,  due  January  8) ; 
Bills  Payable,  $3,000  (No.  1,  $4,000,  dated  September  25,  four 
months  with  interest;  No.  2,  $4,000,  dated  December  2,  sixty 
days);  Allowance  for  Bad  Debts,  $1,000;  Taxes  (accrued  against 
the  business),  $1,800.  Open  the  books  of  the  new  business,  show 
a  balance  sheet  for  its  beginning,  and  then  enter  the  later  trans- 
actions. 

Jan.    1.   The  accrued  taxes  are  paid. 

Jan.  2.  Goods  are  sold  to  Ulysses  Grant,  cash,  $3,000.  Bill 
for  three  months'  supply  of  coal  is  paid,  $300. 

Jan.  3.  Goods  are  bought  of  John  Stark,  payment  due  in 
15  days,  $7,850. 

Jan.    4.   Goods  are  bought  of  Robert  Anderson,  cash,  $2,000. 


.' 


26      PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 

Jan.  5.  Telephone  bill  is  paid,  three  months  in  advance,  $21. 
A  motor  truck  is  bought,  cash,  $2,900,  and  freight  is  paid  on  it, 
$125. 

Jan.  6.  Wages  are  paid :  bookkeeper,  $30;  clerk,  $12;  driver, 
$26.  Goods  are  sold  to  George  McClellan,  $1,000,  —  $400  cash 
down,  balance  10  days. 

Jan.  8.  Announcements  of  the  new  partnership  are  sent  to 
customers  and  $35  is  paid  for  printing  them.  Anthony  Wayne 
accepts  merchandise  in  settlement  of  the  amount  owed  him. 

Jan.  9.  John  Stark's  draft  on  A.  B.  C.  Co.  is  accepted,  payable 
in  nine  days,  for  the  amount  of  the  bill  due  him. 

Jan.  10.  Horatio  Gates  pays  his  bill.  Goods  are  sold  to  John 
Pope,  cash,  $900. 

Jan.  11.  A  note  signed  by  the  A.  B.  C.  Co.  is  discounted  at  a 
bank,  face  $20,000,  30  days.  Goods  are  bought  of  George  Thomas, 
cash,  $18,000. 

Jan.  12.  Robert  Lee  pays  his  note.  A  subscription  for  charity 
is  paid,  $225. 

Jan.  13.  Wages  are  paid  at  the  same  rate  as  on  the  6th.  Insur- 
ance premium  on  stock  of  goods  is  paid  for  one  year,  $300. 

Jan.  15.  William  Sherman  pays  his  note.  Thomas  Jackson's 
note  is  discounted  at  a  bank. 

Jan.  16.  Goods  are  sold  for  cash,  $400.  George  McClellan 
pays  the  balance  of  his  bill. 

Jan.  17.  Freight  is  paid,  $164.  Goods  are  sold  to  Horatio 
Gates,  $15,000,  30  days. 

Jan.  18.  The  acceptance  of  the  9th  is  paid.  Goods  are  sold  to 
John  Fremont,  $12,000,  15  days. 

Jan.  19.  Money  is  borrowed  on  a  note  of  A.  B.  C.  Co.,  $7,000, 
90  days,  bearing  interest. 

Jan.  20.  Philip  Sheridan  pays  his  bill.  Wages  are  paid  as 
before. 

Jan.  22.  Goods  are  bought  of  Robert  Anderson,  $10,000,  10 
days. 

Jan.  23.  Postage  is  paid,  $25.  Ambrose  Burnside  draws  for 
his  own  use,  $250. 

Jan.  24.  A  carpenter's  bill  for  remodeling  offices  is  paid,  $600. 
One  of  the  remodeled  offices  is  rented,  and  two  months'  rent  is 
received  in  advance,  $80. 


LABOR-SAVING  DEVICES  27 

Jan.  25.  Ethan  Allen  pays  a  private  bill  out  of  the  cash  drawer, 
$40.  Note  No.  1  is  paid. 

Jan.  26.   Goods  are  sold  to  Winfield  Scott,  $9,000,  10  days. 

Jan.  27.  A  draft  on  Horatio  Gates  is  drawn  —  payable  in 
20  days,  to  the  order  of  A.  B.  C.  Co.  —  for  the  amount  of  his  bill. 
Wages  are  paid  as  before. 

Jan.  29.  The  draft  drawn  on  the  27th  is  returned  accepted. 
Electric  light  bill  is  paid,  $20. 

Jan.  30.  Horatio  Gates's  acceptance  of  the  draft  is  discounted 
at  a  bank.  Goods  are  bought  of  Henry  Slocum,  $5,000,  15  days, 
and  a  15-day  note  of  A.  B.  C.  Co.  is  given  in  payment. 

Jan.  31.   Note  No.  2  is  paid. 

[This  problem  is  meant  to  give  wide  latitude  to  the  student  in 
method  of  entry  and  in  valuing  assets  at  the  end  of  the  period.  So 
no  exact  cue  to  acceptable  answers  is  given.] 


23 

The  following  transactions  are  to  be  carried  through  the  ledger, 
the  books  are  to  be  closed,  and  the  six-column  statement  and  the 
balance  sheet  as  of  June  1  are  to  be  shown.  The  books  to  be  used 
are  a  journal,  a  sales  book,  a  purchase  book,  a  special-column 
cash  book,  and  the  necessary  ledgers.  Commercial  discounts  are 
regularly  as  follows:  10  days,  6%;  30  days,  5%;  60  days,  net. 
Interest  is  to  be  figured  at  6  %. 

May  1.  You  begin  business,  as  sole  proprietor,  under  the  name 
of  The  Kensington  Company.  You  buy  a  stock  of  merchandise 
for  $10,000.  You  give  in  part  payment  notes  which  you  hold  as 
follows:  Charles  Darwin,  $3,000,  dated  April  15,  payable  in  one 
month;  Herbert  Spencer,  $1,000,  dated  today,  payable  in  two 
months,  bearing  interest;  Louis  Pasteur,  $1,000,  dated  April  1, 
payable  in  30  days.  The  balance  you  pay  in  cash,  and  the  rest  of 
your  original  cash  capital  of  $7,000  you  turn  in  to  the  business. 
The  notes  and  the  cash  constitute  your  investment  in  the  business. 
Pay  rent  up  to  July  1,  $60. 

May  2.  Sell  goods  to  Robert  Boyle  (usual  discounts),  $525. 
Pay  bill  of  $50,  half  of  which  is  for  bookkeeping  books  and  half 
for  printing  advertising  flyers. 


28      PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 

May  3.  Pay  cartage  bill  for  removal  of  your  stock  of  goods 
to  your  store,  $53.50.  Sells  goods  to  Evangelista  Torricelli,  ten 
days  net,  $775.  Sell  merchandise  (30  days  net)  to  Friedrich  von 
Humboldt  for  his  note  for  30  days,  $2,500. 

May  4.  Sell  goods  to  Thomas  Huxley  (usual  discounts),  $1,750. 
Pay  express  bill,  $10.  Buy  merchandise  of  Samuel  F.  B.  Morse 
(usual  discounts),  $500. 

May  5.  Buy  for  cash  a  store  sign,  $20.  Buy  goods  of  Benjamin 
Franklin  (usual  discounts),  $250.  Discount  your  own  note  (signed 
by  The  Kensington  Company)  for  $750  dated  today,  payable  in  30 
days. 

May  8.  Pay  wages  to  two  clerks  at  $10  each.  Receive  from 
legacy  of  Galileo  Galilei,  $2,000,  which  you  invest  in  the  business. 
Pay  for  temporary  decorations  during  a  festival  week,  $50. 

May  12.   Torricelli  pays  his  bill.     Pay  S.  F.  B.  Morse. 

May  14.  Thomas  Huxley  pays  his  bill.  Sell  goods  to  Isaac 
Newton,  10  days  net,  $2,750.  Sell  goods  to  Hermann  Helmholz 
(usual  discounts),  $7,500. 

May  15.   Pay  wages  as  before. 

May  16.   Discount  Humboldt's  note. 

May  21.  Draw  a  draft  on  Isaac  Newton  payable  in  three  days, 
for  the  amount  of  his  bill  of  the  14th.  Buy  a  new  suit  for  yourself, 
$40,  and  pay  for  it  out  of  the  cash  drawer. 

May  22.  Newton  accepts  the  draft  you  drew  on  him  on  the 
21st. 

May  24.   Newton  pays  his  draft. 

May  29.   Pay  wages  as  before,  two  weeks. 

May  31.   Robert  Boyle  pays  his  bill.     Pay  Franklin  his  bill. 

The  inventory  of  merchandise  is  now  found  to  be  $1,500;  wages 
due  amount  to  $7.50;  equipment  and  supplies  are  thought  to  be 
worth  $40;  no  other  allowances  are  deemed  to  be  necessary. 

[The  balance  of  the  cash  book  is  $11,829.92;  the  total  of  the 
purchase  book  is  $10,750;  the  total  of  the  sales  book  is  $15,800. 
The  total  of  the  balance  sheet  is  $20,869.92.] 


LABOR-SAVING  DEVICES  29 

24 

The  following  transactions  are  to  be  entered  in  complete  form, 
with  full  details  and  index  references;  the  resulting  figures  are  to 
be  carried  through  a  six-column  statement;  the  books  are  then  to 
be  closed  as  for  the  end  of  a  year,  and  a  balance  sheet  for  the  be- 
ginning of  the  new  year  is  to  be  shown. 

The  books  to  be  used  are  a  journal,  a  special-column  cash  book, 
a  sales  book,  a  purchase  book,  a  sales  ledger,  a  purchase  ledger,  and 
a  general  ledger.  When  insufficient  details  for  a  complete  record 
of  sale  or  other  entry  are  given  below,  reasonable  details  are  to  be 
assumed.  On  all  goods  bought  or  sold,  3%  cash  discount  is 
allowed  when  payment  is  made  within  ten  days.  Six  per  cent 
should  be  used  for  interest. 

The  closing  inventory  of  merchandise  is  $48,353.10,  and  of 
stationery  $200.  In  determining  and  recording  profit,  care  should 
be  taken  that  all  necessary  additional  facts  are  considered. 

U.  S.  Grant  begins  a  business  as  the  "  Granting  Company  "  on 
July  1,  1914,  with  the  following  capital:  building  at  369  Pleasant 
street  valued  at  $30,000;  cash,  $30,000;  a  promissory  note  of  W. 
S.  Hancock  (B.R.  #  1),  for  $2,000,  dated  July  1,  1914,  payable  in 
two  months;  a  promissory  note  of  G.  G.  Meade  (B.R.  #2),  for 
$4,000,  dated  June  1,  1914,  payable  in  two  months;  a  promissory 
note  of  P.  G.  T.  Beauregard  (B.R.  #  3),  for  $1,000,  dated  June  16, 
1914,  payable  in  one  month;  a  promissory  note  of  W.  T.  Sherman 
(B.R.  #4),  for  $3,000,  dated  May  1, 1914,  payable  on  demand  with 
interest.  The  company  employs  a  bookkeeper  at  $30  per  week, 
an  assistant  bookkeeper  at  $20,  three  clerks  at  $12  each,  a  driver  at 
$24,  a  buyer  at  $42,  and  an  office  boy  at  $8.  Following  are  the 
transactions  of  the  business :  — 

July  1.  Office  furniture  is  bought  and  paid  for,  $1,000;  office 
books,  stationery  and  printing,  ink,  etc.,  $250;  stamps  and 
stamped  envelopes,  $30. 

July  2.  Goods  are  bought  of  W.  S.  Rosecrans,  $8,000;  of  J. 
Hooker,  cash,  $6,000. 

July  3.  A  second-hand  motor  truck  in  perfect  condition  is 
bought  at  a  bankruptcy  sale,  cash,  $1,000,  and  freight  is  paid  on  it, 
$130.  Telephones  are  installed  and  three  months'  charges  are 
paid  in  advance,  $50.  A  contract  is  made  with  a  daily  paper  to 


30      PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 

publish  the  advertisements  of  the  new  business  for  $60  a  month, 
payable  in  advance.     The  first  month's  payment  is  made. 

July  5.  P.  H.  Sheridan  buys  goods,  $1,400.  Goods  are  bought 
of  A.  E.  Burnside,  cash,  $12,000. 

July    6.   Wages  are  paid. 

July    8.   Goods  are  bought  of  J.  Longstreet,  $14,000. 

July  9.  A  draft  drawn  on  the  Granting  Company  by  W.  S. 
Rosecrans,  payable  in  three  days,  for  the  amount  of  its  bill,  is 
accepted  (B.P.  #1). 

July  10.  A  note  signed  by  the  Granting  Company  is  discounted 
at  the  Merchants'  Bank,  face  $10,000,  30  days  (B.P.  #2).  W.  T. 
Sherman  pays  his  note  (B.R.  $4). 

July  11.   Goods  are  bought  of  G.  G.  Meade,  cash,  $12,000. 

July  12.  The  promissory  note  of  G.  G.  Meade  (B.R.  #  2)  is  dis- 
counted at  the  Merchants'  Bank.  The  acceptance  of  July  9  is 
paid. 

July  13.  Wages  are  paid.  Goods  are  sold  to  G.  B.  McClellan, 
$1,150. 

July  15.   J.  E.  Johnston  buys  goods,  $400. 

July  16.  P.  G.  T.  Beauregard  pays  his  promissory  note  due 
today  (B.R.  $3).  J.  Longstreet  buys  goods,  $1,200,  and  gives  his 
note  payable  in  30  days  (B.R.  #5). 

July  17.   Goods  are  sold  to  T.  J.  Jackson,  cash,  $600. 

July  18.  Money  is  borrowed  on  a  note  of  the  Granting  Com- 
pany for  $8,000,  30  days,  with  interest  (B.P.  #3).  J.  Longstreet 
is  paid. 

July  19.  Insurance  premium  on  the  stock  of  goods  is  paid  for 
one  year,  $200,  policy  #  64,510. 

July  20.   Wages  are  paid. 

July  22.  The  Uwantus  Building  Company  is  paid  for  remodel- 
ing the  offices,  $600.  One  of  the  remodeled  offices  is  rented  and 
three  months'  rent  is  received  in  advance,  $200. 

July  23.  G.  B.  McClellan  pays  his  bill.  The  winter's  supply 
of  coal  is  paid  for,  $200. 

July  24.  A  donation  to  the  Red  Cross  is  made,  $200.  Goods 
are  sold  for  cash,  $2,400. 

July  25.  A  draft  on  P.  H.  Sheridan  is  drawn,  payable  in  10 
days,  to  the  order  of  the  Granting  Company  for  the  amount  of  his 
bill.  A  bill  of  the  Model  Company,  for  goods  bought  by  Mrs. 
Grant,  is  paid,  $150.  J.  E.  Johnston  pays  his  bill  of  the  15th. 


LABOR-SAVING  DEVICES  31 

July  26.   The  draft  drawn  on  the  25th  is  returned  accepted. 

July  27.  P.  H.  Sheridan's  acceptance  of  the  draft  of  the  25th  is 
discounted  at  the  Merchants'  Bank.  Wages  are  paid. 

July  29.   Mr.  Grant  draws  for  his  own  use,  $300. 

July  30.   Goods  are  bought  of  W.  S.  Rosecrans,  $2,000. 

July  31.  Goods  are  sold  to  G.  B.  McClellan,  $1,000;  and  to  J.  E. 
Johnston,  $1,000,  —  $450  cash  paid,  balance,  30  days. 

[This  problem  is  meant  to  give  the  student  latitude  of  method  in 
treating  interest,  discounts,  allowances,  etc.,  and  therefore  no  defi- 
nite figures  are  given  as  a  cue  to  correct  answers.  It  may  be  worth 
his  while  to  attempt  the  handling  of  dummy  documents,  cash,  mer- 
chandise, etc.,  and  then  see  whether  his  papers  at  the  close  show 
that  his  situation  is  what  it  is  represented  by  the  books  to  be.] 


BALANCE  SHEET  AND  INCOME  SHEET 

[Chapter  VII] 

25 

The  annual  report  of  a  corporation  shows  the  following  figures: 
Undivided  Profits,  credit  balance  at  the  beginning  of  the  year, 
$20,000;  Merchandise,  profit,  $150,000;  Expense,  $100,000;  Divi- 
dends, declared  but  not  paid,  $50,000;  Permanent  Surplus,  in- 
creased $15,000.  Present  the  Profit  and  Loss  account  for  the  year. 

[The  balance  sheet  shows  a  credit  balance  to  Undivided  Profits, 
$5,000.] 


26 

Schedule  I  was  the  balance  sheet  at  the  beginning  of  the  year. 
Schedule  II  is  the  trial  balance  at  the  end  of  the  year  before  the 
books  are  closed.  There  are  no  outstanding  or  accrued  items,  and 
no  inventories.  Give  the  balance  sheet  at  the  close  of  the  year 
and  test  it  by  an  income  sheet. 

I 

Real  Estate $10,000  Proprietor  $45,000 

Mdse 25,000  Bills  Payable 5,000 

Bills  Rec 8,000  Accts.  Pay 12,000 

Accts.  Rec 12,000  Accrued  Liabilities  . .  610 

Cash 7,610 

$62,610  $62,610 


BALANCE  SHEET  AND  INCOME  SHEET      33 

II 

Proprietor $43,000 

Bills  Payable    4,000 

Accounts  Payable   10,000 

Real  Estate $41,350 

Bills  Receivable 6,400 

Cash 1,516 

Repairs   88 

Freight 249 

Insurance    250 

Expense 2,740 

Purchases    64,550 

Sales 67,167 

Interest  740 

Commission    236 

Accounts  Receivable 8,000 

$125,143  $125,143 

Why  has  the  proprietor's  balance  shrunk  ? 


27 

Below  is  a  trial  balance  taken  before  the  books  were  closed,  an 
income  sheet,  and  a  balance  sheet.  Show  (a)  the  ledger  as  it 
looked  before  closing  [totals  or  balances  only],  (6)  the  closing  items, 
and  (c)  the  ledger  as  it  looked  after  closing. 

Proprietor $140,000 

Bills  Payable    $20,000  30,000 

Accounts  Payable   310,000  328,000 

Merchandise 450,000  350,000 

Accounts  Receivable 375,000  353,000 

Fixtures 4,000 

Cash 6,700 

Wages   20,000 

Insurance    400 

Taxes 2,000 

Rent 5,000 

Interest  800  100 

General  Expense   7,200 

$1,201,100          $1,201,100 


34      PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 

Mdse.  sales $350,000 

Mdse.  inventory,  1911    $150,000 

Mdse.  purchases 300,000 

Mdse.  handled  '.:.  $450,000 

Mdse.  inventory,  1912    140,000 

Mdse.  cost  of  sales 310,000 

Gross  profit $40,000 

Wages    $20,500 

Insurance    200 

Taxes 2,000 

Rent 5,000 

Interest  600 

General  Expense   6,700                 35,000 

Net  income $5,000 

Merchandise $140,000  Proprietor  . .    $145,000 

Accounts  Rec 22,000  Bills  Payable         10,000 

Fixtures 4,000  Accounts  Pay.       18,000 

Cash 6,700  Wages  Accrued         500 

Supplies 500 

Prepaid  insurance    . . .  200 

Prepaid  interest 100 


$173,500 
[The  work  should  be  self-proving. 


$173,500 


BALANCE  SHEET  AND  INCOME  SHEET      35 

28 

You  are  ordered  by  a  court  to  close  the  affairs  of  an  illegal 
corporation.  The  following  is  the  trial  balance  as  you  find  it: 

Capital  stock $169,000 

Real  Estate $70;000 

Mortgages  Payable  55,000 

Bills  Payable    25,000 

Bills  Receivable 15,000 

Accounts  Receivable    17,000 

Merchandise     150,000 

Cash 7,000 

Expenses 15,000 

Interest  3,000 

Taxes    2,500 

Sales 30,500 

$279,500  $279,500 

You  dispose  of  the  real  estate  at  90%  of  the  book  valuation; 
you  collect  75%  of  the  accounts  receivable;  you  get  $130,000  for 
the  merchandise;  the  other  assets  realize  100%.  Determine 
surplus  or  deficit  and  explain,  in  the  form  of  a  Profit  and  Loss 
account,  its  origin.  Prove  your  figures  by  a  balance  sheet  after  all 
other  assets  have  been  converted  into  cash  but  before  any  debts 
have  been  paid. 

How  is  the  Merchandise  account  kept  in  these  books  ? 

[Figure  of  surplus  or  deficit,  $21,250.] 


29 

The  following  items  appear  in  the  report  of  a  corporation.  Put 
them  in  the  form  of  a  balance  sheet  and  an  income  sheet,  and  ar- 
range the  latter  so  as  to  give  the  clearest  view  of  the  operations  of 
the  business. 

Sales $249,000      Wages  paid $83,000 

Accounts  receivable 17,000      Dividends  paid 9,000 

Material  on  hand 14,000     •  Bonds  issued 30,000 

Capital  stock    90,000     '  Real  estate    25,000 

Wages  due 7,000     -Cash 12,000 


36      PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 


.  Patent  rights 

•Depreciation 

•  Bills  receivable 

•  Interest  paid 

•  Interest  accrued  to  pay  . . . 
Surplus  a  year  ago 

•  Insurance  paid   

•  Insurance  unexpired    

'Material  on  hand  a  year  ago 

•  Taxes  paid 

•  Taxes  accrued  to  pay 

f  Plant 


$16,000  Rentals  earned  and  received  $200 

3,000  •  Rentals  earned  but  not  due  300 

7,000     •  Accounts  payable 46,000 

900     •  Repairs  of  plant    6,000 

600      Surplus  for  the  year 14,000 

48,100    «  Miscellaneous  costs 11,500 

500      'Material  purchased 85,000 

200     •  Selling  costs     20,000 

21,600  Estimated  present  value  of 

800  outstanding    advertising 

800          paid  for    2,000 

66,000    .  Loss  by  defalcation    10,000 

67,000 


[The  ultimate  results  should  be  self-proving.] 


1. 

2. 

3. 

4. 

5. 

6. 

7. 

8. 

9. 
10. 
11. 
12. 
13. 
14. 
15. 


30 

The  trial  balance  of  a  business  is  given  as  below : 

Capital  Stock 

Real  Estate 

Accounts  Receivable 

Merchandise  Inventory  (beginning) 

Raw  Material 

Plant   

Cash 

Surplus  (beginning) 

Wages  and  Salaries  

Advertising 

Insurance    

General  Expenses 

Rent  of  Real  Estate  Let 

Fire  Loss 

Sales  . 


$50,000 
60,000 
50,000 
56,000 
75,000 
15,000 

153,000 
5,000 
1,000 
15,000 

5,000 


$193,000 


34,000 


2,000 
256,000 


$485,000        $485,000 


On  examination  of  the  books  and  the  establishment,  certain 
other  facts  are  disclosed  about  items  on  the  trial  balance,  as  fol- 
lows: 

Item  2  comprises  $20,000  worth  of  property  let  and  $30,000 
worth  occupied. 


BALANCE  SHEET  AND  INCOME  SHEET      37 

Item  4  has  an  inventory  of  $60,000. 

Item  5  has  an  inventory  of  $18,000. 

Item  6  is  worth  $73,000. 

Item  9  includes  $2,000  of  unearned  salaries  paid  while  the  busi- 
ness was  shut  down  after  a  fire,  $3,000  spent  for  work  installing  a 
water  system  for  the  buildings,  and  $15,000  for  salaries  of  salesmen. 

Item  10  includes  $1,000  spent  for  preparation  of  material  and 
plates  not  yet  used  but  about  to  be  used. 

Item  11  includes  $200  on  real  estate  let,  $400  on  plant  and  real 
estate  occupied,  $400  on  merchandise. 

Item  12  includes  $10,000  for  selling  costs  and  $5,000  for  manu- 
facturing costs. 

The  directors  now  declare  20%  dividends;  but  these  dividends 
are  not  yet  paid. 

Show  the  income  sheet  in  what  seems  to  you  the  best  form  for 
this  business,  and  show  the  balance  sheet  after  the  declaration  of 
dividends. 

[Surplus  for  the  year,  $21,400;  Surplus  on  the  balance  sheet 
$48,400;  assets,  $280,000.] 


DEPRECIATION  AND   RESERVES 
[Chapter  VIII] 

31 

The  following  is  a  condensed  trial  balance  of  a  partnership. 
The  only  inventory  is  for  supplies,  which  amounts  to  $25,000. 
No  accrued  or  prepaid  items  are  outstanding.  Allow  10  %  depre- 
ciation on  all  accounts  (except  cash  and  supplies)  representing 
property,  5%  on  all  sums  due  the  business  from  outside,  credit 
the  partners  5  %  interest  on  their  investments,  credit  salaries  to 
the  partners  at  $3,000  for  A  and  $2,000  for  B,  and  then  divide 
profit  or  loss  equally  between  the  partners.  Show  the  balance 
sheet  ready  for  the  next  year. 

A $40,000 

B 20,000 

Plant  and  Machinery   $45,000 

Supplies 43,000 

Sales 95,000 

Labor 30.000 

Expense 7,800 

Interest 600 

Discounts    1,250 

Fuel  3,000 

Insurance    1,150 

Freight 1,500 

Accounts  Payable   9,000 

Accounts  Receivable    32,000 

Steam  Earnings  1,500 

Cash 200  

$165,500  $165,500 

[Balance  sheet  totals,  $97,700.] 


32 

You  are  given  the  following  trial  balance,  dated  February  29, 
and  are  told  that  all  transactions  have  been  entered,  but  the  books 
have  not  been  closed  since  January  1. 


DEPRECIATION  AND  RESERVES  39 

Capital  Stock    $93,750 

Plant,  etc $70,675 

Bills  Receivable    38,400 

Accounts  Receivable    22,500 

Cash  14,065 

Bills  Payable 37,500 

Accounts  Payable 6,250 

Sales   80,250 

Wages  and  Salaries 24,592 

Raw  Material   37,908 

Merchandise  Discounts  440            2,500 

Power,  etc 3.125 

Insurance 155 

Taxes    310 

Interest 410 

Commission 1,875 

Office  Supplies 180 

Sundry  Expense    4,505 

Repairs 685 

Depreciation   425 

$220,250      $220,250 

The  business  was  reorganized  on  March  1,  and  in  preparation 
for  the  entries  for  the  new  business  the  books  were  closed  for  the 
old.  The  resulting  balance  sheet  is  shown  below. 

Plant,  etc $70,675  Capital  Stock  $93,750 

Bills  Receivable  ....  38,400  Bills  Payable 37,500 

Accounts  Receivable  22,500  Accounts  Payable    .  . .  6,250 

Cash 14,065  Wages  Accrued 785 

Raw  Material 15,400  Interest  Accrued    ....  155 

Insurance  Prepaid   .  .  100  Allowance  for  Bad  Debts    1,200 

Office  Supplies   80  Reserve  for  Deprec'on  3,000 

Undivided  Profits  ....  18,580 

$161,220  $161,220 

Show  the  income  sheet. 

[The  work  should  be  self-proving.] 


40      PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 

33 

A  business  presents  the  following  condensed  income  sheet  and 
condensed  balance  sheet. 

Jan.  1,  1914  — Dec.  31,  1914 

Merchandise  credit  balance    $150,000 

General  expenses 130,000 

$20,000 
Maintenance  10,000 

Net  profit $10,000 

Dividends 9,000 

Surplus  for  the  year $1,000 

January  1,  1915 

Plant   $100,000  Capital  Stock  $150,000 

Supplies ' . . ,  10,000  Payables    10,000 

Receivables 45,000  Surplus 5,000 

Cash .,.  10,000 

$165,000  $165,000 


Assume,  therefore,  that  wear  and  tear  requires  an  annual  main- 
tenance charge  of  $10,000.  Show  the  income  sheet  and  the  balance 
sheet  as  they  would  have  looked  if  each  of  the  policies  indicated 
below,  taken  in  turn  and  not  cumulatively,  had  been  substituted 
for  the  policy  which  resulted  in  the  figures  above,  assuming  that  in 
all  respects  not  specified  the  policy  was  unchanged.  [The  most 
convenient  way  to  make  such  a  comparative  study  is  to  provide  a 
column  for  all  titles,  both  income  sheet  and  balance  sheet  one  under 
the  other,  leaving  spaces  for  new  titles,  and  six  columns  for  figures, 
and,  after  writing  in  the  first  column  the  figures  given  above,  give 
substituted  figures  for  the  other  policies  in  the  succeeding  columns.] 

(a)  Spending  only  $5,000  for  maintenance. 

(6)  Spending  only  $5,000  for  maintenance,  but  paying  $14,000 
in  dividends. 

(c)  Spending  nothing  for  maintenance,  and  declaring  but  not 
yet  paying  dividends  of  $9,000. 

(d)  Spending  $10,000  for  maintenance,  paying  $5,000  for  divi- 
dends, and  setting  aside  a  $5,000  reserve  for  depreciation. 


DEPRECIATION  AND  RESERVES  41 

(e)  Spending  $5,000  for  maintenance,  establishing  a  special  cash 
maintenance  fund  of  $5,000,  and  declaring  but  not  yet  paying  a 
$9,000  dividend. 

[The  work  should  be  self -proving.  The  balance-sheet  figures  of 
Surplus  for  the  substitutions  run  as  follows:  $5,000,  nil,  $5,000, 
$4,000,  $5,000.] 


34 

A  condensed  tentative  balance  sheet,  with  $10,000  net  income 
for  the  year  on  the  tentative  income  sheet  before  any  account  is 
taken  of  depreciation,  reads  as  follows: 

Plant,  etc $80,000      Capital  Stock $100,000 

Receivables 40,000      Payables    40,000 

Merchandise 33,000      Surplus 10,000 

Cash 7,000  Undivided  Profits ....      10,000 

$160,000  $160,000 

The  directors  are  divided  in  opinion  on  a  policy  to  adopt  regard- 
ing depreciation  and  dividends.  Show  the  balance  sheet  as  it 
would  look  after  the  adoption  of  each  of  the  following  policies,  sup- 
posing the  tentative  sheet  above  embodies  no  provision  for  either 
depreciation  or  dividends.  Find  the  surplus  for  the  year,  — i.  e., 
the  net  income  not  distributed  to  those  entitled  to  profits. 

(a)  Accepting  the  theory  that  depreciation  has  actually  occurred 
in  the  last  year  to  the  amount  of  $5,000,  and  declaring  (but  not 
yet  paying)  a  dividend  of  6  %. 

(6)  Accepting  the  theory  that  maintenance  has  kept  up  the 
property,  but  setting  aside  a  reserve  of  $6,000,  to  make  assurance 
doubly  sure,  for  depreciation,  and  declaring  a  dividend  of  5  %. 

(c)  Discovering  that  depreciation  had  been  going  on  for  some 
years  up  till  a  year  ago  and,  though  the  plant  has  been  maintained 
for  the  last  year  at  the  standard  of  a  year  ago,  the  total  deprecia- 
tion not  recorded  on  the  books  is  $15,000;  but,  on  the  ground 
that  the  shrinkage  will  be  immediately  made  good,  refusing  to 
write  off  the  item  of  Plant;  and  declaring  a  dividend  of  3  %. 

[Surplus  on  the  balance  sheet,  $9,000,  $9,000,  $2,000.  Surplus 
for  the  year,  -$1,000,  $5,000,  $7,000.] 


INTERPRETATION  OF  BALANCE  SHEETS 

[Chapter  IX] 

35 

Should  you  be  inclined  to  recommend  an  investment  in  this 
business  or  a  loan  to  it  ? 

Balance  sheets,  dated  Dec.  31 

1910               1911  1912 

Real  Estate    $100,000        $100,000  $100,000 

Mdse 100,000          125,000  150,000 

Bills  Rec 50,000            50,000  60,000 

Accts.  Rec 40,000            50,000  60,000 

Fittings 5,000              5,000  5,000 

Cash    .'. 12,000            13,000  14,000 

$307,000        $343,000  $389,000 


Capital  Stock  .... 
Bills  Payable  
Accts.  Pay. 

$200,000 
15,000 
67  000 

$200,000 
20,000 
93,000 

$200,000 
25,000 
129,000 

Surplus  . 

25000 

30,000 

35,000 

$307,000    $343,000    $389,000 


Purchases  

Sales    

Discounts  taken 
Discounts  given 
Dividends  paid 


Other  figures 

1910 
$600,000 
700,000 
30,000 
25,000 
6% 


1911 
$700,000 
825,000 
35,000 
36,000 
7% 


1912 

$800,000 

1,000,000 

40,000 

50,000 

8% 


It 


3" 


[Suggestions  toward  an  answer:  —  analysis  and  computation 
from  the  figures  shown  gives  the  total  of  a  where-got-gone  state- 
ment for  the  two  years  as  $82,000;  percentage  of  discounts  taken 
on  all  purchases  paid  for  in  the  second  year  as  5.2  %;  expenses  in 
the  second  year  as  $130,000.]  / 

£ 


42 


\ 


INTERPRETATION  OF  BALANCE  SHEETS  43 

36 

The  balance  sheet  of  a  corporation  on  January  1,  1914,  stood  as 
follows: 

Real  Estate $50,000        Capital  Stock $200,000 

Plant 95,000  Accounts  Payable     ....       20,000 

Horses,  etc 15,000         Bills  Payable 25,000 

Patents 20,000         Profit  and  Loss 15,000 

Merchandise 30,000 

Accounts  Receivable  ....  30,000 

Cash 20,000 

$260,000  $260,000 


On  January  1,  1915,  the  books  showed  the  following: 

Real  Estate $55,000        Capital  Stock $200,000 

Plant 88,000         Accounts  Payable     ....       12,000 

Horses,  etc 12,000         Bills  Payable 17,000 

Patents 19,000        Profit  and  Loss 33,000 

Merchandise 42,000 

Accounts  Receivable  ....  28,000 

Cash 18,000 

$262,000  $262,000 


Show  in  tabular  form  what  has  become  of  the  profits  earned. 
Should  you  recommend  that  a  dividend  be  declared  ? 
["  Where-got-gone  "  totals,  $33,000.] 


37 

Assume  that  valuations  are  conservative  in  the  business  pre- 
senting the  following  figures. 

Should  you  be  inclined  to  recommend  investment  in  this  busi- 
ness or  a  loan  to  it  ?  Is  the  surplus  real  or  fictitious  ? 

RESOURCES 

Dec.  81  1909  1910  1911 

Real  Estate $100,000             $125,000  $150,000 

Mdse 100,000  100,000  100,000 

Bills  Receivable  ..  25,000  20,000  15,000 

Accts.  Receivable  .  30,000  25,000  20,000 

Fittings  5,000  4,000  3,000 

Cash 15,000  17,000  15,000 

$275,000  $291,000  $303,000 


44      PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 

LIABILITIES 

Dec.  SI                   1909                   1910  1911 

Capital  Stock  ....    $200,000             $200,000  $200,000 

Bills  Payable    ....        40,000              ,  42,000  35,000 

Accts.  Payable  . . .        15,000                27,000  21,000 

Surplus    20,000                22,000  47,000 

$275,000             $291,000  $303,000 

ADDITIONAL  FIGURES 

Year                       1909                    1910  1911 

Purchases   $300,000             $325,000  $350,000 

Sales 325,000              350,000  400,000 

Discounts  given  . .        16,000                 17,000  20,000 

Discounts  taken  ..        15,000                 15,100  15,200 

Dividends 6%                      6%  6% 


38 

A  balance  sheet  for  January  1,  1913,  was  as  follows: 

Real  Estate $75,000      Capital  Stock $200,000 

Notes  Receivable  . . .  15,000      Notes  Payable   75,000 

Accts.  Receivable  . . .  125,000      Accts.  Payable 50,000 

Mdse 118,000      Surplus 25,000 

Cash 17,000 

$350,000  $350,000 

The  business  of  the  year  following  may  be  summarized  as  fol- 
lows: merchandise  bought,  $100,000,  and  paid  for  merchandise 
bought,  $100,000;  merchandise  sold,  $160,000,  and  collected  on 
merchandise  sold,  $145,000;  expenses  paid,  $30,000;  net  profits, 
$40,000,  including  dividends  paid  amounting  to  $25,000. 

Show  the  balance  sheet  for  Jan.  1,  1914,  supposing  sales  of  mer- 
chandise to  be  the  only  source  of  profits. 

[The  trial  balance  of  ledger  balances  after  closing  the  books  will 
show  a  total  of  $365,000.] 


INTERPRETATION  OF  BALANCE  SHEETS     45 

39 

A  summary  of  the  transactions  of  a  corporation  for  one  year  is 
as  follows:  net  income,  now  in  the  form  of  cash,  $34,000;  dividends 
declared  but  not  yet  paid,  $25,000;  bills  payable  converted  into 
capital  stock,  $20,000;  real  estate  bought  for  cash,  $15,000;  notes 
received  in  payment  of  outstanding  ledger  accounts,  $7,000;  all 
other  transactions  have  exactly  offset  each  other,  so  that  except  for 
those  mentioned  above  the  status  is  exactly  as  it  was  a  year  ago. 
The  balance  sheet  at  the  beginning  of  the  old  year  was  as  follows : 

Real  Estate $70,000  Capital  Stock  . . .  $197,000 

Machinery 86,000                Bills  Pay 25,000 

Bills  Rec 24,000  Accts.  Pay.   .  /. . .  12,000 

Accts.  Rec 20,000                Surplus 21,000 

Mdse 31,000 

Cash 24,000 

$255,000  $255,000 


Show  the  balance  sheet  for  the  beginning  of  the  new  year. 
[Totals,  $289,000.] 


40 

The  following  balance  sheet  was  reported  for  Jan.  1,  1914. 

Plant   $350,000  Cap.  Stock    $400,000 

Bills  Rec 5,000  Bills  Pay 50,000 

Accts.  Rec 80,000  Accts.  Pay 40,000 

Mdse 70,000  Surplus 25,000 

Cash 10,000 

$515,000  $515,000 

Transactions  with  the  outside  business  world  caused  the  follow- 
ing changes  in  real  accounts: 

Cash  increase  $7,000 

Bills  payable  decrease 12,000 

Mdse.  increase  11,000 

Accts.  payable  increase 20,850 


46      PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 


The  following  is  a  copy  of  the  Profit  and  Loss  account  on  the 
ledger  for  1914: 


Feb.    1.   Bills  Receivable $200 

Dec.  31.   Accts.  Receivable   700 

Expense 400 

Wages 28,000 

Allowance  for  Bad  Debts  .  400 

Depreciation    7,000 

Dividend  No.  67  3,500 

Dividend  No.  68 3,500 

Balance 25,850 

$69,550 


Jan.     1.   Balance 
Dec.  31.   Interest 

Rent  .. 

Trading 


$25,000 

400 

1,200 

42,950 


$69,550 


Show  the  income  sheet  for  1914  and  the  balance  sheet  for 
Jan.  1,  1915. 

[Total  for  balance  sheet  1915  is  $525,100.  Surplus  for  the 
year  is  $850.] 


THE  ELEMENTS  OF  COST  ACCOUNTING 

[Chapter  X] 

41 

What  expense  and  income  accounts  should  you  recommend 
(choose  titles  that  suggest  the  items  to  be  carried  to  each  account) 
for  a  business  operating  as  follows: 

Owning  its  own  store  building. 

Doing  its  own  heating,  lighting,  elevator  service,  from  its 

own  power  plant. 

Buying  all  its  goods  in  its  own  town. 
Doing  its  own  hauling  and  delivering. 
Paying  the   clerks  regular  salaries  and  bonuses  for  large 

sales. 
Advertising  by  electric  displays,  window  displays,  newspapers, 

and  circulars. 

Conducting  rest  and  recreation  rooms  for  employees. 
Allowing  interest  on  undrawn  salaries. 
Investing  its  surplus  in  loans  to  local  enterprises. 
Selling  goods  for  cash,  for  credit,  and  on  the  installment  plan 

(in  the  latter  case  charging  higher  prices  and  sending  out 

collectors). 


42 

What  should  you  recommend  for  ledger  accounts  in  the  business 
indicated  below :  purchasing  for  cash  farm  produce  through  travel- 
ing buyers  who  take  always  the  full  product  of  a  farm  —  fields, 
tilled  lands,  and  orchards;  doing  its  own  harvesting;  sorting  such 
produce  into  grades  at  city  warehouses;  packing  the  better  grades 
in  special  packages;  selling  the  better  grades,  through  local  and 
traveling  salesmen,  at  wholesale;  selling  culls  directly  at  retail; 
feeding  the  waste  to  hogs  kept  in  the  suburbs  solely  for  the  utiliza- 
tion of  that  waste;  killing,  dressing,  and  selling  the  pork. 

47 


48      PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 

43 

Suppose  that  you  are  engaged  in  the  manufacture  of  chair  stock. 

You  get  some  of  your  raw  material  by  buying  sawed  lumber, 
some  by  buying  logs  and  sawing  them,  some  by  buying  trees  on  the 
stump  (you  do  not  buy  the  land  on  which  they  stand)  and  doing 
your  own  logging,  shipping,  sawing,  etc.,  and  some  by  buying  land, 
getting  off  the  logs,  and  then  selling  the  land. 

Name  the  ledger  accounts  that  you  deem  necessary  for  adequate 
accounting. 


STATISTICS  IN  ACCOUNTING 

[Chapter  XI] 

44 

How  far  do  the  other  figures  explain  for  the  year  1911  the  first 
three  items  ? 

Receipts  from  passengers  have  declined  $50,000 

Receipts  from  freight  have  declined  . .  100,000 

Operating  expenses  have  increased  . . .  200,000 

1910  1911 

Passengers  carried 873,000  892,000 

Passenger  miles    48,015,000  50,865,000 

Average  number  miles  per  passenger  .                  55  57 
Passenger  tariff  rates  unchanged 

Miles  traveled  on  local  tickets    15,500,000  10,355,000 

"  interline  tickets  . . .     13,400,000  14,220,000 
"  mileage  tickets    ...       9,100,000  10,020,000 
u  season  and  commu- 
tation tickets 10,015,000  16,270,000 

Passengers  per  train  mile 90  85 

Passengers  per  car  mile 18  16 

Tons  carried  9,000,000  10,000,000 

Ton  miles   540,000,000  640,000,000 

Average  miles  each  ton  carried 60  64 

Freight  tariff  rates  unchanged 

Tons  per  train  mile  280  265 

Tons  per  car  mile 9  8 

Company  ton  miles 20,000,000  70,000,000 

Revenue  ton  miles 520,000,000  570,000,000 

Ton  miles  local  traffic 300,000,000  75,000,000 

Ton  miles  interline  traffic 240,000,000  565,000,000 

Tons  of  products  of  agriculture 2,000,000  2,830,000 

u       "        "          "forestry    2,250,000  3,050,000 

«       u        "          "mining  1,500,000  1,940,000 

"      "        "          "manufacturing   ..       3,250,000  2,180,000 

49 


50      PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 

45 

You  join  a  summer  colony  within  easy  rail  communication  of  the 
city.  A  general  organization  of  members  of  the  colony  controls  a 
central  club-house  with  grounds.  The  restaurant  privilege  is  sold 
to  outsiders.  Facilities  are  offered  to  members  for  tennis,  golf, 
billiards,  bowling,  boating,  swimming.  For  all  these  privileges, 
fees  are  charged  and  expenses  are  incurred.  All  excess  income  is 
to  be  carried  to  a  general-purpose  fund.  Entertainments  are  pro- 
vided at  club  expense.  You  are  chosen  president  of  the  club. 

What  ledger  accounts  should  be  kept,  what  items  should  be  car- 
ried to  each,  and  what  statistics  should  be  gathered  ? 


PRESENT  WORTHS  AND  AMOUNTS  OF  SINGLE  PAY- 
MENTS AND  OF  ANNUITIES 

[Chapter  XII,  pages  159-167] 

To  give  the  student  ample  opportunity  for  practice  in  the  prin- 
ciples affecting  valuation  through  interest,  without  the  time- 
destroying  labor  of  making  all  his  own  calculations,  tables  of  ratios 
and  of  annuity  values  are  given  on  pages  52  and  53.  For  assurance 
that  he  understands  the  tables,  however,  he  should  do  his  own  fig- 
uring for  a  number  of  typical  problems  and  compare  his  results 
with  the  tables.  A  few  such  typical  problems  follow. 


46 

(a)  When  money  is  worth  6%  a  year  payable  in  semi-annual 
installments,  what  will  $1,000  amount  to  in  two  years  if  interest  is 
collected  on  it,  added  to  the  principal,  and  reinvested  ? 

(6)  What  is  the  present  worth  of  $10,000  payable  in  three  years 
when  money  is  worth  5  %  annually  ? 

(c)  If  you  receive  the  rent  of  a  building  at  $10,000  a  year  paid 
annually  at  the  end  of  the  year,  how  much  will  you  have  at  the  end 
of  four  years,  before  the  fourth  payment  of  rent,  if  you  invest  the 
money  as  soon  as  received  at  4J  %  annually  ? 

(d)  When  money  is  worth  5%  a  year  in  semi-annual  install- 
ments, what  is  the  value  today  of  a  series  of  payments  of  $1,000 
each  made  at  the  end  of  every  six  months  and  continued  for  two 
years  ? 


61 


52      PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 


TABLE  OF  RATIOS 


2% 

2i% 

2J% 

3% 

.88797138 

.87502427 

.86229687 

.83748426 

.90573081 

.89471232 

.88385429 

.86260878 

.92384543 

.91484335 

.90595064 

.88848705 

.94232233 

.93542732 

.92859941 

.91514166 

.96116878 

.95647444 

.95181440 

.94259591 

.98039216 

.97799511 

.97560976 

.97087379 

1.00000000 

1.00000000 

1.00000000 

1.00000000 

1.02 

1.0225 

1.025 

1.03 

1.0404 

1.04550625 

1.050625 

1.0609 

1.061208 

1.06903014 

1.07689063 

1.092727 

1.08243216 

1.09308332 

1.10381289 

1.12550881 

1.10408080 

1.11767769 

1.13140821 

1.15927407 

1.12616242 

1.14282544 

1.15969342 

1.19405230 

4% 

.79031453 
.82192711 
.85480419 
.88899636 
.92455621 
.96153846 
1.00000000 
1.04 
1.0816 
1.124864 
1.16985856 
1.21665290 
1.26531902 


.76789574 

.80245105 

.83856134 

.87629660 

.91572995 

.95693780 

1.00000000 

1.045 

1.092025 

1.14116613 

1.19251860 

1.24618194 

1.30226012 


5% 

.74621540 
.78352617 
.82270247 
.86383760 
.90702948 
.95238095 
1.00000000 
1.05 
1.1025 
1.157625 
1.21550625 
1.27628156 
1.34009564 


6% 

.70496054 
.74725817 
.79209366 
.83961928 
.88999644 
.94339623 
1.00000000 
1.06 
1.1236 
1.191016 
1.26247696 
1.33822558 
1.41851911 


SINGLE  PAYMENTS  AND  ANNUITIES 


53 


TABLE  OF  ANNUITIES  OF  $1,  PAYABLE  AT  THE  END 
OF  EACH  PERIOD 

Present  Worths 


2% 

2i% 

2i% 

3% 

1   0.98039216 

0.97799511 

0.97560976 

0.97087379 

2   1.94156094 

1.93446955 

1.92742415 

1.91346970 

3   2.88388327 

2.86989687 

2.85602356 

2.82861135 

4   3.80772870 

3.78474021 

3.76197421 

3.71709840 

5   4.71345951 

4.67945253 

4.64582850 

4.57970719 

6   5.60143089 

5.55447680 

5.50812536 

5.41719144 

Amounts 

2% 

21% 

2i% 

3% 

1   1.00 

1.00 

1.00 

1.00 

2   2.02 

2.0225 

2.025 

2.03 

3   3.0604 

3.06800625 

3.075625 

3.0909 

4  4.121608 

4.13703639 

4.15251563 

4.183627 

5   5.20404016 

5.23011971 

5.25632852 

5.30913581 

6   6.30812096 

6.34779740 

6.38773673 

6.46840988 

Present 

Worths 

4% 

4J% 

5% 

6% 

1   0.96153846 

0.95693780 

0.95238095 

0.94339623 

2   1.88609467 

1.87266775 

1.85941043 

1.83339267 

3   2.77509103 

2.74896435 

2.72324803 

2.67301195 

4   3.62989522 

3.58752570 

3.54595050 

3.46510561 

5   4.45182233 

4.38997674 

4.32947667 

4.21236379 

6   5.24213686 

5.15787248 

5.07569206 

4.91732433 

Amounts 

4% 

4i% 

5% 

6% 

1   1.00 

1.00 

1.00 

1.00 

2   2.04 

2.045 

2.05 

2.06 

3   3.1216 

3.137025 

3.1525 

3.1836 

4  4.246464 

4.27819113 

4.310125 

4.374616 

5   5.41632256 

5.47070973 

5.52563125 

5.63709296 

6   6.63297546 

6.71689166 

6.80191281 

6.97531854 

54      PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 

47 

How,  from  the  tables,  should  you  prove  or  disprove  the  following 
statements  ? 

(a)  The  present  worth  of  a  payment  of  $2,000,  due  in  four  years, 
discounted  at  3  %,  is  $1,776.97. 

(6)  If  a  sinking  fund  is  established  and  $905.95  is  put  into  it 
Jan.  1,  1912,  and  semi-annually  for  four  more  payments,  and  it 
earns  2 \  %  a  half  year,  the  amount  of  the  fund  when  the  last  in- 
terest is  added,  Jan.  1,  1914,  will  be  $4,761.97. 

(c)  If  you  are  entitled  for  two  years  to  the  income  of  an  estate 
of  $100,000  which  earns  6%  a  year  (in  half-yearly  installments), 
the  present  worth,  at  6  %,  of  your  title  is  $11,151.30. 

(d)  You  wish  to  accumulate  $10,512.66  in  five  payments.     The 
sum  which  you  will  have  to  set  aside  now,  and  semi-annually 
thereafter,  to  attain  that  sum  if  the  installments  earn  2|  %  each 
half  year  is  $2,000. 


48 

Prove,  by  some  other  method  than  that  first  used,  the  correct- 
ness of  your  answers  to  the  following : 

(a)  What  is  the  present  worth  of  a  payment  of  $15,500  due  in 
five  years,  at  4J  %  ? 

(6)  You  have  agreed  to  pay  $9,702.60  three  years  from  today. 
How  much  will  you  have  to  set  aside  at  intervals  of  six  months, 
beginning  six  months  from  now,  to  accumulate  that  sum  if  the 
installments  earn  3  %  semi-annually  ? 

(c)  Suppose  you  wish  to  buy  an  annuity  of  $50,000  a  year  for 
two  years  (in  half-yearly  installments)  to  begin  six  months  from 
now.     How  much  will  you  have  to  pay  for  it  now,  if  interest  is  at 
4i%? 

(d)  If  a  sinking  fund  of  $10,000  is  established  Jan.  1,  1913,  and 
$10,000  is  put  into  it  every  six  months  until  July  1,  1915,  inclusive, 
what  will  be  its  amount  on  the  latter  date,  supposing  interest  to 
be  3  %  semi-annually  ? 


FINDING  THE  VALUE  OF  A  BOND 
[Chapter  XII,  pages  167-169] 

49 

(a)  What  is  the  present  value  of  the  principal  of  a  $1,000  bond 
payable  in  six  years  when  money  is  worth  6  %  ? 

(6)  What  is  the  present  value  of  the  interest  payments  of  a 
$1,000  bond,  bearing  5%  interest,  maturing  in  six  years,  when 
money  is  worth  6  %  ? 

(c)  If  a  business  is  of  such  a  type  that  6  %  interest  is  deemed 
fair  for  loans  to  it,  what  is  the  present  value  of  one  of  its  $1,000 
bonds  payable  in  six  years  and  bearing  5  %  interest  ? 

(d)  If  a  bond  pays  $50  interest  a  year  and  you  deem  $60  to  be  a 
fair  payment,  what  is  the  present  worth,  at  6  %,  of  the  first  year's 
loss  of  interest  to  you  by  having  this  bond  rather  than  another  that 
pays  $60  ? 

(e)  What  is  the  present  worth  of  six  years'  loss  of  such  interest  ? 
(/)   What  is  the  premium  or  discount,  on  a  6  %  basis,  on  such  a 

bond? 

(g)  What  is  the  relation  between  the  first  three  parts  of  this 
problem  and  the  last  two  ? 

[If  (g)  is  properly  answered,  the  work  will  be  self-proving.] 


50 

Two  clerks  in  an  office,  A  and  B,  were  asked  to  find  the  value  on 
a  4  %  basis  of  a  $10,000  bond,  due  in  3  years,  bearing  interest  at 
4J%  (semi-annual  payments).  A  reported  $10,138.75  and  B  re- 
ported $9,859.96.  Show  that  one  or  neither  was  right. 

[Will  the  bond  be  at  a  premium  or  at  a  discount  ?  What  will  be 
the  "  difference  of  interest  "  ?  Will  the  "  difference  of  interest  " 
be  annual  or  semi-annual  ?  Will  the  rate  for  valuing  the  annuity 
be4i%,4%,  2i%,  or  2%?] 

55 


56      PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 

51 

(a)  Find  directly,  without  finding  the  value  of  the  bond,  the 
premium  on  a  bond  for  $1,000  payable  in  two  years,  with  interest 
at  5  %  (interest  semi-annually),  when  4J  %  is  the  basis  rate. 

(6)  How  much  greater  would  be  the  premium  on  a  similar  bond 
paying  5J  %  ? 

(c)  What  would  be  the  discount  on  a  bond  paying  4  %  ? 

(d)  What  would  be  the  discount  on  a  similar  bond  paying  4J  % 
if  the  basis  were  5  %  ? 

(e)  Should  the  answer  to  (d)  be  the  same  amount  as  the  answer 
to  (a)  ? 

[The  answers  to  all  but  (e),  but  not  in  the  order  of  the  questions, 
Mow:  $9.46,  $9.40,  $9.46,  $9.46.] 


52 

Which  is  a  better  purchase: 

(a)  A  $1,000  5  %  bond,  payable  in  three  years,  which  you  can 
buy  at  lOlf,  if  you  deem  4J  %  to  be  a  fair  basis,  or 

(6)  A  $1,000  4J  %  bond,  payable  in  three  years,  which  you  can 
buy  at  101J,  if  you  deem  4  %  for  this  bond  a  fair  basis  ? 

[One  is  a  better  bargain  than  the  other  by  $1.11.] 


AMORTIZATION  AND  ACCUMULATION 
[Chapter  XII,  pages  169-180] 

53 

Show  the  amortization  table  for  a  5%  bond  (interest  payable 
semi-annually),  for  $1,000,  payable  in  three  years,  on  a  basis  of 
4J  %  (interest  semi-annually). 

[The  first  amortization  is  $2.19.] 


54 

(a)  Bonds  for  $10,000,  due  January  1,  1917,  bearing  interest  at 
6%  a  year  (payable  in  semi-annual  installments),  are  worth  on 
January  1,  1915,  $10,188.10,  on  the  assumption  that  on  security 
of  this  class  an  investment  should  yield  2|  %  each  half  year.    Show, 
by  an  amortization  table,  the  value  of  this  bond  for  the  first  of  each 
January  and  of  each  July  until  maturity. 

(b)  What  is  the  present  worth  of  $100  payable  in  three  periods, 
when  money  is  worth  2 \  %  per  period  ? 

(c)  What  is  the  relation  between  the  answer  to  (b)    and  the 
second  amortization  of  the  table  hi  (a)  ? 

[The  work  should  be  self-proving.] 


55 

Fill  in  the  missing  items  in  the  following  table: 
Market  Interest    Bond  Interest    Accumulation      Book  Value      Par  Value 

$98,558.06     $100,000 
$1,971.16        $1,500.00 
1,980.58          1,500.00 
1,990.20          1,500.00 

What  rate  of  interest  does  the  bond  bear,  and  what  is  the  basis 
rate  ?     Can  you  be  sure  of  these,  or  are  they  only  one  set  of 

57 


58      PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 

answers  out  of  several  sets  of  answers  ?    Could  the  bond  rate  be 
3  %;  6  %  ?     After  determining  the  basis  rate,  fill  out  the  accumu- 
lation column  directly,  by  independent  calculation,  without  using 
any  figure  in  the  interest  columns. 
[This  should  be  self-proving.] 


56 

You  are  offered  two  lots  of  bonds  each  of  $10,000.  You  would 
be  willing  to  buy  either  lot  at  a  price  which  would  yield  you  a  net 
income  of  5J  %.  Lot  A  consists  of  5  %  bonds,  and  lot  B  consists  of 
6%  bonds.  Both  pay  interest  semi-annually,  and  today  is  an 
interest  day.  Bonds  having  the  term  of  lot  A  are  listed  in  bond 
tables,  on  a  5J.%  basis,  as  having  a  value  six  months  ago  of 
$9,493.77,  and  bonds  having  the  term  of  lot  B  are  listed  similarly 
with  a  value  six  months  ago  of  $10,216.00.  You  are  offered  lot  A 
at  95,  and  lot  B  at  102.  Which  is  the  better  offer,  supposing  that 
in  buying  the  bonds  you  do  not  buy  the  interest  coupons  due 
today? 

[The  offer  of  one  is  $7.91  better  than  the  offer  of  the  other.] 


LIFE-MAN'S  AND  REMAINDER-MAN'S  SHARES 

[Chapter  XH,  pages  185-190] 

57 

All  of  an  estate  is  now  in  the  f orm  of  bonds,  which  bear  5  % 
annual  interest  ($5,000)  and  have  a  present  book  value  of  $105,- 
242.14.  You  are  trustee  for  the  estate.  The  income  of  the  estate 
is  to  go  to  A. B.  for  his  life,  and  at  his  death  the  principal  is  to  go  to 
C.D.  Both  are  collateral  heirs. 

(a)  How  much  should  you  pay  A.B.  at  each  of  the  first  three 
interest  dates  if  the  bonds  were  bought  on  a  4  %  basis  (and  con- 
tinue to  be  quoted  at  a  price  that  yields  virtually  that  rate),  but 
reinvestments  of  small  sums  can  now  be  made,  on  equally  good 
security,  to  yield  4|  %  ? 

(6)  Suppose  that  the  life-man  were  to  die  at  the  end  of  the  third 
interest  period,  and  that  the  property  of  the  estate  were  to  be  con- 
verted into  cash  at  its  book  value  on  that  date.  What  would  the 
remainder-man  get  as  his  inheritance  ? 

[(a):  $4,209.69;  $4,213.63;  $4,217.75.     (6):  $105,242.14.] 


LEASES,  PATENTS,  AND  OTHER  ANNUITIES 

[Chapter  XII,  pages  191-194] 

58 

You  hold  a  patent  deemed  by  both  you  and  a  friend  to  be 
capable  of  producing  an  income  of  $2,000  a  year  for  four  years, 
and  after  that  probably  to  be  worthless.  Your  friend  has  a  claim 
to  an  estate,  deemed  by  both  of  you  to  be  realizable  in  three  years, 
for  $8,000  (one  lump  sum).  You  agree  to  exchange  rights  on  a 
4%  basis.  How  much  bonus  should  be  given  by  one  side  or  the 
other  ?  What  entry  will  you  make  on  your  books  at  the  time  of 
the  exchange,  supposing  the  patent  right  to  have  been  already  on 
your  books  at  the  agreed  valuation  ?  What  entry  will  you  make 
on  your  books  one  year  later  ? 

[The  difference  in  value  is  $147.82.] 


59 

Suppose  that  six  years  ago  you  hired  a  building  on  a  busy 
city  corner,  and  got  a  twelve-year  lease,  with  a  stated  rental  of 
$10,000  a  year.  Land  values  have  risen  in  that  vicinity  so  that 
the  building  is  now  worth  $20,000  a  year.  Supposing  that  five  per 
cent  is  considered  a  fair  basis  for  computation  (after  allowing  for 
the  frequency  of  rent  payments),  what  is  the  lease  worth  today  ? 

If  the  lease  is  sold  at  that  value,  what  entry  should  be  made  on 
the  books  of  the  seller  of  the  lease  at  the  time  of  sale  ? 

What  entry  should  be  made  on  the  books  of  the  buyer  of  the 
lease  at  the  time  of  buying  ?  What  entry  a  year  later  ?  What 
entry  two  years  later  ? 

[Value  of  the  lease,  $50,756.92.  Amounts  of  certain  entries  for 
buyer  one  year  later,  $7,462.15  and  $2,537.85.  Amounts  of  cer- 
tain entries  two  years  later,  $7,835.26  and  $2,164.74.] 


PURCHASE  AND  SALE  OF  BONDS 
[Chapter  XII,  pages  179-180,  195-198] 

60 

The  following  amortization  table  is  correct  for  a  certain  bond. 
(a)  What  can  you  tell  about  the  contract  terms  of  the  bond  ? 

(6)  If  you  had  bought  it  on  December  1,  1912,  for  101J  flat, 
should  you  have  bought  it  at  more  or  less  than  its  theoretical  value, 
and  how  much  ?  What  would  your  entries  be  ? 

(c)  What  entry  should  you  make  for  the  interest  received  on  the 
bond,  November  1,  1913  ? 

Date  Bond  Int.  Basis  Int.  Amortization    Book  Value 

1912  May  1  $10,190.39 
Nov.  1  $250  $203.81  $46.19        10,144.20 

1913  May  1  250  202.88  47.12        10,097.08 
Nov.  1  250  201.94  48.06        10,049.02 

1914  May  1  250  200.98  49.02        10,000.00 

[Difference,  $3.01.  Among  other  things,  December  1912,  Inter- 
est Accrued,  $41.67.  Among  other  things,  November  1913, 
Interest  Earned,  $201.94.] 


61 

Show  the  ledger  accounts  (all  items)  for  Bonds,  for  Interest 
Earned,  and  for  any  gain  or  loss,  after  the  following  transactions : 

A  4%  $10,000  bond,  paying  interest  annually  on  July  1,  was 
bought  on  July  1  after  the  interest  coupons  for  that  day  had  been 
removed,  for  87f ,  which  chanced  to  be  its  theoretical  price  on  a 
4.7  %  basis  on  that  day.  The  bond  was  sold  nine  months  later  for 
88|  and  interest. 

[The  gain  is  $104.50.] 


61 


62      PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 

62 

On  January  1  you  buy  of  a  friend  a  bond  for   $10,449.13,  - 
which  is  its  theoretical  value  on  a  4  %  basis.     On  March  1  you  buy 
another  like  it,  and  pay  $10,518.79,  which  includes  accrued  interest. 
On  July  1,  you  receive  your  semi-annual  interest  of  $250  on  each 
bond. 

What  entry  should  you  make  on  your  books  for  the  original 
purchase  ? 

What  for  the  March  1  purchase  ? 

What  for  the  July  1  interest  ? 

On  October  1  you  sell  the  two  bonds  on  the  market  for  104  and 
interest.    ' 

How  much  do  you  make  or  lose  on  the  sale  ? 

What  should  be  the  entries  for  October  1  ? 

[Prove  your  entries  by  showing  that  your  cash  balance  equals  the 
gain  plus  the  balance  of  Interest  Earned.     The  gain  is  $25.62.] 


63 

A  $2,500  bond  bearing  interest  at  4|  %  (semi-annual  payments) 
has  two  years  more  to  run  on  the  day  you  purchase  it.  You 
believe  such  a  bond  should  pay  3  %  semi-annually,  and  you  buy  it 
with  that  basis  in  mind,  but  you  pay  $2,425  for  it.  Do  you  buy  at 
better  or  worse  than  that  basis  ?  If  you  wish  to  enter  the  bond 
on  your  books  at  a  6  %  basis,  what  entry  will  you  make  for  the 
purchase  ?  If  you  sell  it  three  months  later  at  97J  and  interest, 
what  entry  will  you  make  for  the  sale  ? 

[The  balance  of  Bond  Price  Residues  for  both  entries  will  be 
$4.18.  The  entry  to  Interest  Earned  will  be  $36.45.] 


ISSUE  OF  BONDS 
[Chapter  XII,  pages  19&-200] 

64 

Bonds  are  issued  to  the  amount  of  $12,000,000,  payable  in 
twenty-five  years,  with  interest  at  5  %  annually  (in  semi-annual 
payments).  The  credit  of  the  issuing  company  is  not  good  enough 
to  warrant  investors  in  lending  on  a  basis  of  less  than  5^  %.  The 
bonds  are  accordingly  sold  for  $11,190,084. 

Show  the  entry  for  the  issue. 

Show  the  entry  for  the  interest  item  of  six  months  later,  and  of 
twelve  months  later. 

[After  the  first  interest  payment,  Discount  on  Bonds  has  a  debit 
balance  of  $802,188.69;  and  after  the  second  interest  payment,  of 
$794,248.88.] 


65 

Bonds  are  issued  amounting  to  $5,000,000,  paying  6%  a  year 
(interest  semi-annually),  and  are  sold  on  a  5  %  basis.  The  price  is 
112.5514. 

What  entry  should  be  made  at  issue  ? 

What  should  be  the  entry  for  the  first  interest  item  ?  What  for 
the  second  interest  item  ? 

[At  the  first  interest  entry  the  charge  to  Bond  Premium  will  be 
$9,310.75;  at  the  second,  $9,543.52.] 


OPTIONAL-REDEMPTION  BONDS 
[Chapter  XII,  pages  200-202] 

66 

We  find  a  5%  bond  (with  interest  payable  semi-annually), 
running  eighteen  years,  to  have  a  theoretical  value  three  years  from 
today  of  $1,054.11  on  a  4J%  basis.  The  bond  has  a  clause  pro- 
viding for  optional  redemption  on  that  date  at  104J.  Assuming 
no  future  change  in  the  market  rate  of  interest  or  in  the  security  of 
the  bond,  what  is  the  bond  worth  today  ? 

What  would  the  bond  be  worth  today  if  the  optional-redemption 
figure  for  three  years  hence  were  106  ? 

[The  premium  in  the  first  case  is  $53.26;  in  the  second,  $54.11.] 


64 


THE  PRINCIPLES  OF  CAPITALIZATION 
[Chapter  XIII] 

67 

The  following  is  the  abbreviated  balance  sheet  of  a  corporation, 
January  1,  1915: 

Real  Estate $200,000    Capital  Stock  $300,000 

Plant   100,000    Accounts  Payable    . .        25,000 

Stock  50,000     Surplus 75,000 

Accounts  Receivable  30,000 

Replacement  Fund  3,500 

Cash  .  16,500 


$400,000  $400,000 

The  company  immediately  carries  out  four  operations  as  follows : 

(a)  It  builds  a  new  wharf,  in  a  new  location,  because  engineering 
difficulties  are  in  the  way  of  extending  an  old  wharf  to  accommo- 
date larger  steamers  required  for  its  increased  business.     The  pres- 
ent book  value  (depreciated  in  10  years  from  $2,000)  of  the  old 
wharf  abandoned  is  $500,  but  no  recoverable  value  remains  at 
abandonment,  and  the  cost  of  the  new  wharf  is  $5,000. 

(b)  It  buys,  out  of  the  replacement  fund  set  aside  for  the  pur- 
pose, a  new  machine  at  a  cost  of  $3,000,  to  take  the  place  of  one 
originally  costing  $4,000  (but  now  selling  new  for  $3,000)  and  al- 
ready written  down  by  depreciation  to  $500  and  yielding  $30  as 
scrap  in  part  payment  for  the  new  machine. 

(c)  It  buys  new  machines  to  replace  old  (now  carried  on  the 
books  at  $2,000)  for  $10,000,  and  gives  the  old  for  $300  in  part  pay- 
ment for  the  new.     The  new  do  the  same  work  as  the  old  but  can 
be  operated  with  less  labor  (a  saving  of  $1,000  a  year)  than  ma- 
chines like  the  old,  which  originally  cost  $8,000  and  can  now  be 
bought  for  that  amount. 


66      PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 

(d)  It  discards  its  old  safety  devices,  which  cost  $5,000  but  have 
been  depreciated  to  $2,000  (now  unsaleable  but  given  in  exchange 
at  $50),  and  in  compliance  with  a  new  law  puts  in  new  safety 
devices  at  a  cost  of  $8,000. 

Show  the  balance  sheet  after  the  changes  above,  on  these  sup- 
positions :  no  other  transactions  occur  while  these  operations  are 
going  on,  and  the  charges  for  the  purchases  described  above,  not 
otherwise  provided  for,  were  covered  by  the  issue  of  notes.  Show 
the  entry,  for  each  operation,  for  each  of  the  three  bases  of  capital- 
ization discussed  in  the  chapter. 

Supposing  the  replacement  fund  had  been  accumulated  speci- 
fically for  replacing  the  machines  of  the  second  transaction,  and 
that  it  proves  excessive  as  shown  (so  that  no  purpose  is  served  by 
its  continuance),  what  entry  or  entries  should  be  made  for  closing 
it? 

[It  is  impossible  in  a  reasonable  space  to  make  the  description  of 
the  circumstances  about  each  of  these  transactions  so  detailed  that 
no  misconception  can  arise.  The  purpose  of  the  problem  is  to 
arouse  discussion  in  a  class  rather  than  to  show  an  absolutely  right 
or  wrong  conclusion.  Taking  each  circumstance  on  its  face,  how- 
ever, the  three  bases  of  capitalization  give  the  following  balance- 
sheet  items:  cost  basis  — Plant,  $122,950,  Surplus,  $72,330; 
duplication  basis  — Plant,  $121,000,  Surplus,  $70,380;  earning- 
capacity  basis  — Plant,  $118,000,  Surplus,  $67,380. 

What  is  the  actual  gain  in  the  second  case  from  the  reduction  in 
the  purchase  price  of  the  new  machine  ?  Is  it  a  gain  of  cash  ?  of 
capital  ?  of  surplus  ?  of  saved  expense  ?] 


RAILROAD  ACCOUNTS 

[Chapter  XIV] 

68 

Arrange  the  following  items  of  a  railroad  report  in  the  form  that 
will  give  the  best  idea  of  its  condition  and  earning  capacity: 
[All  figures  are  in  millions.] 

Due  to  other  companies    $1.5 

Securities  owned  and  unpledged    145.0 

Interest  on  bonds  owned 3.9 

Dividends  declared  but  not  due 6.4 

Cash  10.3 

Advances  to  other  companies 18.3 

Dividends,  4  %  on  preferred  stock 3.2 

Reserve  for  depreciation  of  securities  35.4 

Due  from  agents .7 

Miscellaneous  income .1 

Interest  on  funded  debt 14.0 

Other  investments    .2 

Common  stock  outstanding    202.3 

Matured  obligations .4 

Miscellaneous  rental  charges    .5 

Materials  and  supplies 8.3 

Dividends  due  but  uncalled  for  4.5 

Interest  earned  on  miscellaneous  accounts 4.2 

Interest  receivable  not  due 2.2 

Surplus  for  the  year 11.7 

Dividends,  9  %  on  common  stock   18.2 

Road  and  equipment 525.9 

Reserve  for  special  funds .4 

Rental  charges  for  joint  facilities 1.0 

Dividends  receivable  not  due .3 

Special  deposits .1 

Hire  of  equipment  —  debit  balance .8 

Allowance  for  depreciation  on  road  and  equipment  15.1 

Net  income    33.1 

67 


68      PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 

Preferred  stock  outstanding  $79.5 

Due  from  other  companies  2.0 

Dividends  on  stock  owned   8.3 

Securities  pledged 68.7 

Rail  operations  —  revenue   88.3 

Reserve  for  extra  dividend  54.0 

Prepayments  of  various  expenses 1.4 

Gain  on  sales  of  stock   16.2 

Outside  operations  —  expenses 3.0 

Rents  receivable  not  due .1 

Allowance  for  insurance 6 

Miscellaneous  rentals  earned   .4 

Loans  and  bills  receivable 18.4 

Matured  interest  payable  4.0 

Profit  and  Loss 90.5 

Rentals  earned  from  lease  of  road .1 

Miscellaneous  accounts  receivable 5.0 

Contracts  for  land  sales  (liability) 1.2 

Mortgage  bonds  outstanding   241.9 

Rentals  earned  from  joint  facilities .8 

Miscellaneous  deferred  liabilities 2.1 

Contracts  for  land  sales  (asset)    1.2 

Cash  and  securities  in  special  funds 4 

Audited  vouchers  payable 5.7 

Railway  operating  income 31.6 

Premium  on  stock  issued 20.0 

Taxes  accrued  not  due 2.5 

Assets  set  aside  ready  for  paym't  of  a  spec'l  divid.  54.0 

Miscellaneous  bonds  outstanding 72.1 

Rail  operations  —  expenses 51.4 

Accounts  payable 4.7 

Taxes   5.1 

Interest  payable  not  due 1.5 

Outside  operations  —  revenue   2.8 

[The  items  are  grouped  naturally  as  follows,  in  millions:  $724.7, 
$44.7,  $2.6,  $21.4,  $54.0,  total  assets,  $847.4;  $301.8,  $314.0, 
$20.8,  $10.4,  $20.1/  $89.8,  $90.5,  total  liabilities  $847.4;  $36.9, 

1  This  road  reports  the  gain  on  stocks  sold  as  a  deferred  liability,  for  the 
gain  has  not  yet  been  appropriated  to  any  ultimate  destination. 


RAILROAD  ACCOUNTS 


69 


-  1.2,  $36.7,  $5.1,  $31.6,  $17.8,  $49.4,  $16.3,  $33.1,  $21.4,  surplus 
for  the  year  $11.7.] 


Following  are  the  abbreviated  balance-sheet  figures  (for  the  end 
of  each  year)  and  income-sheet  figures  of  a  railroad  for  three  years 
[all  figures  in  millions] : 


First  year    Second  year    Third  year 


Cost  of  road  and  equipment $152.5 


Real  estate,  etc 

Improvements  and  betterments 

Investments 

Advances  to  subsidiaries 

Supplies    

Cash  

Other  current  assets 

Bonds  and  notes  guaranteed  . . . 


1.0 
2.4 
31.4 
3.3 
3.8 
1.1 
3.4 
3.7 

$202.6 


$160.4 
1.1 
3.4 
30.2 
3.6 
5.5 
8.8 
4.3 
3.3 

$220.6 


$166.7 
1.0 
3.5 
29.7 
4.7 
6.5 
8.8 
5.7 
3.4 

$230.0 


Liabilities 


First  year    Second  year     Third  year 

Capital  stock $60.0  $60.0  $60.0 

Bonded  debt   114.4  129.2  128.5 

Bills  payable   6.5 

Accounts  payable  2.6  2.2  2.5 

Mileage  coupons  outstanding .1  .1  .1 

Dividends  declared 1.8  1.8  1.8 

Other  current  liabilities 4.8  5.4  6.1 

Reserve  for  depreciation  of  special  tracks  .3  .5  .3 

Contingent  liability  on  guarantees 3.7  3.3  3.4 

Profit  and  loss  .  14.9  18.1  20.8 


$202.6 


$220.6 


$230.0 


70      PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 


Income  Sheet 


Gross  earnings    

First  year    i 
$38.5 

Second  year 
$43.0 

Third  year 

$48.3 

Operating  expenses      .    .  . 

26.5 

30.9 

35.8 

Net  earnings 

120 

12  1 

125 

Rents  earned  

9 

.7 

.7 

Income  from  investments 

.7 

.8 

.8 

Gross  income  

13.6 

13.6 

14.0 

Fixed  charges      .         .             .    .  . 

....           6.8 

7.3 

7.6 

Net  income    

6.8 

6.3 

6.4 

Dividends      .           

3.6 

3.6 

3.6 

Surplus  for  the  vear  . 

$3.2 

$2.7 

$2.8 

Following  are  significant  statistical  and  expense  figures: 

First  year  Second  year  Third  year 

Pass,  train  earnings  per  revenue  train  mile        $1.314          $1.231  $1.284 

Frt.  train  earnings  per  revenue  train  mile        $1.813          $1.853  $1.851 

Average  paid  each  passenger  per  mile   . .           2.289c.         2.434c.  2.368c. 

Average  paid  each  ton  per  mile .791c.           .803c.  .801c. 

Passengers  per  train  mile   46.8             41.1  44.8 

Tons  per  train  mile   229            230.6  230.9 

Pass,  train  expenses  per  revenue  tram  mile          $.796            $.869  $.904 

Frt.  train  expenses  per  revenue  train  mile          $1.32            $1.37  $1.42 

Average  length  of  passenger  journey,  miles              39                 34  40 

Average  haul  of  freight,  miles  167               160  168 

Net  revenue  per  passenger  train  mile  . . .           $.518            $.362  $.380 

Net  revenue  per  freight  train  mile   $.493            $.483  $.431 

Average  number  loaded  cars  per  frt.  train             13.3              12.9  12.4 

Average  number  empty  cars  per  frt.  train                6.5               5.8  5.5 

Passengers  carried  9,500,000    10,600,000   10,900,000 

Ton  miles  carried  [billions] 3.5                3.9  4.4 

Fuel  cost   $2,200,000  $2,560,000  $2,910,000 

Train  wages $2,000,000  $2,660,000   $3,350,000 

Maintenance  of  way,  per  mile $1,500          $1,600  $1,860 

Maintenance  of  locomotives,  per  mile   . .               6.7c.             9.1c.  7.7c. 

Maintenance  of  passenger  cars,  per  mile.               1.3c.             1.6c.  1.5c. 

Maintenance  of  freight  cars,  per  mile  . . .               .82c.             .86c.  l.OSc. 

Par  value  of  stocks  held  $25,800,000 

Book  value  of  stocks  held 17,400,000 

Par  value  of  bonds  held   14,100,000 

Book  value  of  bonds  held 14,000,000 


RAILROAD  ACCOUNTS  71 

Explain:  the  reason  for  the  increase  of  bonded  debt  in  the  second 
year;  the  source  of  the  funds  for  additions  to  cost  of  road  in  the 
third  year;  the  grounds  for  accepting  or  rejecting  the  valuation  of 
stocks  and  bonds  owned;  the  probability  that  the  surplus  is  real; 
the  reason  for  the  decline  in  net  income;  the  proper  place  for  the 
bills  payable  —  capital  or  current  liabilities;  the  decline  in  gross 
earnings  per  passenger-train  mile;  the  increase  in  average  freight- 
train  load;  the  decline  hi  net  earnings  per  freight-train  mile;  the 
increase  in  expenses,  passenger  and  freight,  per  mile. 


REORGANIZATIONS 

[Chapter  XV] 

70 

A  railroad's  capital  liabilities  are  as  follows: 
$25,000,000  common  stock 
25,000,000  preferred  stock  (6  %) 
5,000,000  income  bonds  (5  %) 
15,000,000  general  first-mortgage  bonds  (4J  %) 
5,000,000  general  second-mortgage  bonds  (4J  %) 
10,000,000  car-trust  bonds  (5  %) 

The  net  earnings  of  the  road  have  run  for  the  last  five  years  as 
follows,  —  $950,000,  $1,150,000,  $1,350,000,  $1,050,000,  $1,150,- 
000;  its  other  income  has  been  steady  at  $500,000;  its  fixed  charges 
in  addition  to  interest  have  been  close  to  $100,000.  Rentals  and 
taxes  have  now  increased  $250,000;  earnings  have  shrunk  slightly 
owing  to  hard  times;  and  so  the  fixed  charges  cannot  be  met. 

Assuming  a  reorganization  to  be  necessary,  and  no  unusual 
privileges  to  attach  to  any  of  the  liabilities  specified  above,  outline 
a  plan  for  reorganization  for  each  of  the  following  circumstances: 

(a)  The  stockholders  believe  the  road  can  be  developed  under 
new  management,  with  new  capital,  to  yield  in  the  near  future  5  % 
on  the  preferred  stock  and  in  the  remote  future  5  %  on  the  common 
stock. 

(6)  No  one  believes  the  road  can  ever  yield  any  dividends  on 
common  stock,  but  everyone  believes  it  may  in  ten  years  yield  4  or 
5  %  on  preferred  stock. 

(c)  The  road  does  not  need  new  capital,  but  must  wait  several 
years  for  the  country  to  develop  to  its  requirements  for  traffic  — 
perhaps  two  years  for  earnings  enough  to  pay  its  present  fixed 
charges,  four  years  for  enough  to  pay  interest  on  income  bonds,  six 
years  for  dividends  on  preferred  stock,  and  eight  years  for  divi- 
dends on  common  stock. 

(d)  The  bondholders  have  no  confidence  in  the  management  of 
the  road,  but  have  large  confidence  in  its  present  earning  capacity 
if  well  managed;  and  the  stockholders  have  much  confidence  in  the 
management  but  little  confidence  in  the  earning  capacity. 

72 


TRUST  ACCOUNTING 
[Chapter  XVII] 

71 

When  a  trust  is  taken  over  on  July  1,  the  property  in  it  is  as 
follows  (using  appraised  value  for  all  items  except  cash) :  bonds, 
$39,700;  real  estate,  $159,000;  cash,  $1,300.  The  compensation 
for  handling  the  property  is  4|  %. 

On  January  1,  interest  is  collected  on  bonds,  $700;  rentals  are 
collected  on  real  estate,  $3,850;  amortization  for  the  half  year  on 
the  bonds  is  $40;  repairs  on  real  estate  are  paid  for,  $210. 

On  March  1,  rent  is  collected,  $4,000,  and  $1,000  is  paid  to  the 
owner  of  the  income. 

On  July  1,  interest  is  collected,  $700,  and  $41  is  set  aside  for 
amortization;  and  taxes  are  paid,  $3,800.  The  balance  of  income 
is  transferred  to  principal.  Half  the  bonds  are  sold  for  $20,000. 

Show  the  balance  sheet  for  the  trust  company  for  these  transac- 
tions at  this  stage. 

[The  total  of  the  balance  sheet  is  $204,349^.50.] 


73 


INSURANCE  AND  LIFE  TENURES 
[Chapter  XVIII] 

72 

An  employee  of  yours  desires  a  technical  education,  and  your 
confidence  in  him  justifies  a  belief  that  he  will  be  worth  to  you 
$2,000  a  year  after  a  four-year  course  in  a  technical  school.  He 
agrees  to  work  for  you  for  three  years  after  his  four-year  course  is 
completed,  for  $500  a  year,  if  you  will  advance  to  him  $850  a  year 
(the  first  payment  to  be  immediate)  for  four  years  to  enable  him 
to  take  such  a  course.  Counting  the  risk  of  his  death  before  the 
contract  is  completed,  is  the  offer  approximately  fair  ? 

To  avoid  detailed  calculation  of  great  refinement,  assume  that 
you  count  the  risk  as  $3,400  (the  maximum  outstanding  advance  at 
any  tune)  for  seven  years,  and  that  the  benefit  of  your  employee's 
services  after  his  return  to  work  will  not  be  realized  until  the  end  of 
any  year  —  though  in  reality  your  risk  is  only  $850  for  one  year, 
$1,700  for  one  year,  etc.,  and  your  gain  from  his  services  will  begin 
at  the  beginning  of  the  fifth  year.  Assume  the  man's  age  to  be  25, 
and  that  you  will  not  take  out  a  policy  on  his  life  but  will  take  the 
risk  yourself.  Assume  money  to  be  worth  5  %  for  the  loan,  but  to 
be  calculated  at  only  4%  in  determining  the  cost  of  insurance. 
Suppose  the  cost  of  paid-up  insurance  has  already  been  calculated 
for  five  years,  for  men  25  years  of  age,  as  follows :  present  worth 
of  $1,000  death  claims,  on  the  standard  number  of  lives  (89,032), 
maturing  in  ages  25  to  29  inclusive,  $3,197,200;  or  cost  of  $1,000 
paid-up  insurance,  without  loading,  for  those  years  $35.91.  Sup- 
pose, further,  that  the  number  of  deaths  on  the  standard  number 
of  lives  for  age  30  is  719,  and  for  the  next  year  is  the  same. 

[The  present  worth  of  what  you  are  to  do  for  your  employee  is 
$3,164.76,  and  the  cost  of  insurance  is  $164.66,  or  a  total  of 
$3,329.42.  The  present  worth  of  what  he  is  to  do  for  you  is 
$3,360.63.  The  offer  is  therefore  to  your  advantage,  especially  as 
the  calculation  has  somewhat  overstated  the  risk  to  be  insured 
and  somewhat  understated  the  value  of  his  services.  (To  enable 
the  student  to  perform  all  the  calculations  for  himself,  without 

74 


INSURANCE  AND   LIFE  TENURES  75 

using  the  cost  of  paid-up  insurance  for  five  years  as  given  in  the 
problem,  the  following  table  is  appended.) 

Age  Living  Dying 

25  89,032  718 

26  88,314  718 

27  87,596  718 

28  86,878  718 

29  86,160  719 

30  85,441  719 

31  84,722  719] 


73 

A  piece  of  real  estate  is  sold  at  auction  subject  to  the  widow's 
right  of  dower,  for  $10,000.  Her  right  of  dower  is  the  right  to  one- 
third  of  the  income  of  the  property  for  her  life.  Assume  her 
expectation  of  life  to  be  five  years,  and  interest  to  be  5  %  annually. 

If  the  auction  price  was  fair,  what  is  the  property  worth  ?  What 
is  a  fair  cash  offer  to  make  to  the  widow  in  exchange  for  her  sur- 
render of  the  right  of  dower  ? 

[Value  of  the  property,  $10,777.70.  Value  of  right  of  dower, 
$777.70.] 


FACTORY  ACCOUNTING 
[Chapter  XIX] 

74 

The  following  facts  refer  to  an  establishment  as  a  whole: 
Working  year,  2,700  hours 

Ground  rent,  annually   $2,000 

Light,  annually    350 

Heat,  annually    500 

Depreciation  of  buildings,  3  % 
Depreciation  of  machinery,  10  % 
Insurance,  1  % 
Taxes,  1J  % 
Interest,  5  % 

The  following  refer  to  the  power  plant : 

Valuation  of  building   3,000 

Valuation  of  machinery   10,000 

Annual  repairs  of  building 30 

Annual  repairs  of  machinery 300 

Wages  annually  1,500 

Supplies  consumed  annually   75 

Fuel  consumed  annually 1,500 

Share  of  land  occupied,  1/5 
Share  of  light  consumed,  1/7 
Run  full  capacity  all  the  time 

The  following  refer  to  the  shop : 

Valuation  of  building   15,000 

Valuation  of  machinery   75,000 

Annual  repairs  of  building 300 

Janitor  care,  etc 1,350 

Annual  repairs  of  machinery 2,000 

Oil,  waste,  etc.,  consumed  annually 243 

Share  of  heat  consumed,  4/5 
Share  of  light  consumed,  5/7 
Share  of  power  consumed,  9/10 
Share  of  land  occupied,  2/5 

76 


FACTORY  ACCOUNTING  77 

The  following  refer  to  machine  #  57 : 

Annual  charge  for  use  of  special  tools   6.20 

Share  of  all  general  shop  charges,  based  on  its 
proportion  of  valuation,  of  space,  of  power, 
etc.,  assuming  all  these  to  give  the  same 
proportion,  1/45 
No  idle  time,  and  setting-up  time  negligible. 

Find  the  machine  hour-rate  for  machine  #  57,  and  by  such  a 
calculation  that  the  minimum  number  of  changes  will  be  required 
for  another  machine,  with  different  proportions,  in  the  same  shop. 

[Answer,  $.2111.] 


75 

Find  the  minimum  rate  and  the  additional  rate  for  another 
machine  (  #  83)  in  the  shop  for  which  figures  were  given  hi  Problem 
74,  when  the  following  figures  can  be  attached  to  the  machine 
itself: 

Cost  of  machine $950.00 

Supplies  consumed  annually    2.50 

Superintendence 75.00 

Annual  charge  for  use  of  special  tools   2.30 

Care 4.80 

Repairs  from  operation 16.00 

Obsolescence 28.00 

Depreciation  from  operation   21.50 

Power,  1/50  of  total  of  plant 
Space,  1/75  of  total  of  shop 
Heat,  1/40  of  total  of  shop 
Light,  1/50  of  total  of  shop 

The  specific  items  given  above  for  this  machine  supplant,  of 
course,  the  corresponding  blanket  figures  of  the  previous  problem : 
e.  g.,  here  is  given  a  specific  cost  for  supplies  used  with  this  machine, 
and  separate  shares  for  heat,  light,  etc. ;  therefore  these  figures  sup- 
plant the  $243  for  supplies,  and  the  1/45  for  general  shop  costs,  of 
the  other  problem. 

[The  minimum  hour  rate  is  $.0640,  and  the  additional  rate  is 
$.0873.] 


78      PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 

76 

The  following  facts  apply  to  machine  $  19  for  the  year  : 

Space  cost  ......    $29.25        Use  cost  ........    $85.66 

Machine  cost   ...      69.00        Power  cost  ......      47.25 

Estimated  idleness  ...........................  one-half 

Assuming  a  nine-hour  day  and  a  year  of  2,700  hours,  show  the 
machine  ledger  Jtor  machine  $  19  for  one  day  when  the  occupied 
time  is  8  hours,  and  th£  running  time  6  hours. 

Order  $  25  was  the  only  job  on  the  machine  that  day,  and  it 
was  begun  and  finished  on  that  day.  Show  the  charge  to  the 
order  for  its  machine-burden  itelfis. 

[Answer,  88c.] 


77 

Order  #  99  was  on  machine  #  10,  in  Dept.  A,  9  hours,  of  which 
the  machine  was  running  8  hours.     The  records  show  that  the 
machine  is  idle,  on  the  average,  five-sixteenths  of  the  time. 

The  total  group  costs  of  machine  $  10  for  the  year  are  as  fol- 
lows: 

Space  cost   .....    $27.30          Use  cost  -  .......    $89.41 

Machine  cost  .  .".    103.00          Power  cost  .....      94.50 

The  cost  figures  for  the  shop  are  as  follows  : 

Raw  material  used  ................................  $180,000  * 

Secondary  stores  cost  .............................  3,000  - 

Superintendence  Dept.  A  ..........................  4,000> 

«     B  ..........................  2,000 

"     C  .  .  .  .......................  3,500 

Total  direct  labor  charges  Dept.  A  ..................  60,000  * 

«        «        "        «          «      B  ..................  45,000 

«        «        «        «          «       C  ..................  50,000 

Total  manufacturing  cost  exclusive  of  administration, 

Dept.  A  .......................................  900,000 

Total  manufacturing  cost  exclusive  of  administration, 

Dept.  B  .......................................  110,000 

Total  manufacturing  cost  exclusive  of  administration, 

Dept.  C  .......................................  120,000 


FACTORY  ACCOUNTING  79 

Administrative  expense,  Dept.  A 3,000 

u            a      B 5,000 

"      C 7,000 

General  factory  administrative  expense 25,000 

Selling  cost 40,000 

The  following  costs  have  been  already  charged  to  order  #99: 
Labor $25.00        Stores $12.60 

Show  all  charges  to  order  #  99  assuming  that  in  this  business  a 
percentage  J)asis  is  satisfactory  for  all  distributions  for  which  no 
other  basis  is  implied  above. 

[Answer,  S43.ll.] 


78      • 

The  following  figures  are  taken  from  the  trial  balance  and  from  a 
supplementary  statement  of  a  corporation: 

Capital  Stock $100,000 

Bills  Payable   25,900 

Accounts  Receivable $74,000 

Accounts  Payable   31,000 

Wages   137,000 

Pay  Roll  130,000 

Raw  Material  Inventory   17,000 

Raw  Materials 48,000          50,000 

Goods-in-Process  Inventory 33,000 

Manufacturing 187,000 

Rent 4,000 

Interest  300 

Insurance    600 

Plant   50,000 

Taxes 1,000 

General  Expense   7,000 

Cash 4,000 

Selling  Cost    8,000 

Sales  .  220,000 


$563,900      $563,900 


80      PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 

Supplementary  facts 

/Naoods  in  process,  on  hand,  at  cost $23,000 

Interest  accrued  liability 300 

Insurance  premiums  unexpired 150 

Finished  goods  on  hand   13,000 

Raw  material  on  hand   15,000 

Show  the  income  sheet  and  the  balance  sheet. 

[They  should  prove  each  other.      The  balance  sheet  total  is 
$179,150.] 


79 

Suppose  that  the  cost  accounts  of  a  manufacturing  business  are 
carried  through  the  general  ledger,  and  that  the  accounts  have  been 
closed  so  far  as  to  show  on  the  ledger  all  the  figures  for  the  operating 
statement.  This  statement  follows  on  the  next  page. 


FACTORY  ACCOUNTING 


81 


Operating  statement,  May  1,  1913  to  April  30,  1914 

Sales $297,000 

Raw  materials  on  hand,  5/1/13  . . .  $26,000 

bought 107,000 

"           a         handled 133,000 

"            "         on  hand,  4/30/14  . .  18,000 

consumed  115,000 

Wages  paid $54,000 

Less  balance  due,  5/1/13  .        2,000 

52,000 
Wages  due,  4/30/14    ....  900 

Wages  cost   52,900 

Taxes 1,500 

Interest  prepaid,  5/1/13  .  600 

Interest  paid  in  and  for  year  1,000  1,600 

General  manufacturing  expenses  . .  30,000 

Manufacturing  cost 201,000 

Goods  in  process,  5/1/13   10,000 

Cost  of  goods  for  year 211,000 

Goods  in  process,  4/30/14  7,000 

Cost  of  goods  finished  in  year  ....  204,000 

Stock  on  hand,  5/1/13   60,000 

Cost  of  finished  goods  handled 264,000 

Stock  on  hand,  4/30/14 20,000 

Cost  of  goods  sold 244,000 

Selling  cost  10,000           254,000 

Net  profits    .  $43,000 


82      PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 

Show  the  debit  and  credit  ledger  totals  (not  balances)  for  these 
cost  accounts. 

[The  excess  of  total  debits  over  total  credits  is  $1,100;  but  the 
total  for  each  account  should  prove  with  the  figures  of  the  operat- 
ing statement  above.] 


80 

Show  the  balance  sheet  for  a  business  which  meets  the  following 
conditions:  capital  stock,  $200,000;  cash  on  hand,  $7,000;  sur- 
plus, $50,000;  manufactured  goods  on  hand,  $10,000;  notes  out- 
standing, $25,000;  sums  owed  for  raw  material,  $25,000;  sums 
owed  for  wages,  $3,000;  raw  material  on  hand,  $6,000;  undivided 
profits,  $4,000;  notes  of  customers  on  hand,  $17,000;  depreciation 
fund,  in  bonds,  $8,000;  sums  due  from  customers,  $15,000;  real 
estate,  $100,000;  machinery,,  etc.,  $144,000. 

In  the  following  year  the  business  is  as  follows :  goods  manu- 
factured (on  contract)  and  accepted  by  customers,  though  some 
await  orders  for  shipment,  $147,000  (contract  price) ;  goods  deliv- 
ered (on  contract),  $135,000,  of  which  the  goods  on  hand  at  the  be- 
ginning of  the  year  made  up  $13,000,  and  the  new  product  showed 
a  cost  of  $111,500;  collected  on  goods,  $129,000  in  cash,  $20,000  in 
notes;  labor  expense  incurred  and  paid,  $50,000;  raw  material 
bought,  $75,000;  raw  material  paid  for,  $90,000;  raw  material 
consumed,  $70,000;  new  machinery  bought  and  paid  for,  $20,000; 
interest  paid,  $1,000;  interest  accrued  against  ^he  corporation,  not 
yet  due,  $200;  cash  spent  for  current  maintenance  of  buildings  and 
machinery,  $3,500;  collected  on  notes,  $28,000;  general  expenses 
paid,  $9,000;  borrowed  on  notes,  $50,000;  restoration  of  buildings, 
paid  from  depreciation  fund,  $2,000;  paid  on  notes,  $20,000;  losses 
from  bad  debts,  $1,000;  taxes  paid,  $1,000;  dividends  paid, 
$17,500. 

Show  the  income  sheet  for  the  year. 

Show  the  balance  sheet  for  the  beginning  of  the  new  year. 

[Surplus,  $47,800.] 

[It  is  probable  that  time  will  be  saved  and  confusion  will  be 
avoided  if  a  rough  journal  and  a  rough  ledger  are  used  for  assist- 
ance in  working  out  this  problem.] 


FACTORY  ACCOUNTING  83 

81 

The  following  figures  are  shown  on  a  balance  sheet  for  January 
1,  1913: 

Real  Estate $100,000    Capital  Stock $400,000 

Machinery 500,000    Funded  Debt    200,000 

Merchandise 150,000    Bills  Payable 50,000 

Accounts  Receivable          50,000    Accounts  Payable  75,000 

Cash 50,000    Surplus 125,000 


$850,000  $850,000 

The  following  is  the  income  sheet  for  the  year  1912: 

Sales  ..............................  $1,000,000 

Goods  in  process,  Dec.  31,  1912   ......          30,000 

Stores  on  hand,  Dec.  31,  1912  ........          20,000 

Merchandise,  Dec.  31,  1912  ..........        100,000 


$1,150,000 
Less  selling  costs   ...................        250,000   $900,000 


Goods  in  process,  Jan.  1,  1912  ........  $20,000 

Stores  on  hand,  Jan.  1,  1912  .........  15,000 

Merchandise  on  hand,  Jan.  1,  1912    .  .  .  80,000 

Supplies  purchased   .................  175,000 

Wages  paid  ........................  320,000, 

Wages  due  and  unpaid  ..............  30,000 

General  manufacturing  expenses  ......  200,000 


Cost  of  product   ................  $840,000 


Net  profit   .....................  60,000 

Dividends  declared,  but  not  yet  paid  .  .  32,000 


Surplus  for  the  year    ............  $28,000 

Is  the  balance  sheet  consistent  with  the  income  sheet  ?  If  not, 
assume  the  ledger  and  the  totals  of  both  sides  of  the  balance 
sheet  to  be  correct,  and  any  error  to  have  been  caused  by  un- 
warranted combinations  or  cancellations  of  accounts,  and  then 
correct  the  balance  sheet. 


84      PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 


Show  the  ledger,  with  both  sides  of  all  manufacturing  accounts, 
when  closed  for  December  31,  1912. 

The  balance  sheet  on  January  1,  1912,  was  as  follows: 

Real  Estate $100,000    Capital  Stock $400,000 

Machinery 500,000    Funded  Debt   200,000 


Goods  in  Process  . . . 
Finished  Goods 

Stores  

Accounts  Receivable, 
Cash  . 


20,000    Bills  Payable 40,000 

80,000    Accounts  Payable  60,000 

Surplus 97,000 

Dividends   28,000 


15,000 
75,000 
35,000 

$825,000 


$825,000 


Is  this  consistent  with  the  income  sheet  and  with  the  1913 
balance  sheet  as  corrected  ? 

[The  work  should  be  self-proving.] 


FACTORY  ACCOUNTING 
82 


85 


Prepare  such  a  tabular  statement  or  statements  as  an  account- 
ant should  give  to  his  employers  or  clients  for  a  business  yielding 
the  following  figures  on  three  trial  balances  (of  ledger  balances) 
taken  at  the  times  indicated. 


Capital  Stock          

Trial  balance  at  the 
opening  of  business, 
Jan.  1,  1912 

Trial  balance  Dec.  31, 
1912,  before  the  books 
are  closed 

Trial  balance  at  the 
opening  of  business, 
Jan.  1,  1913 

Dr.           Cr. 

.      .      $200,000 

Dr.           Cr. 

....      $200,000 
40,000 
37,500 
7,000 

Dr.           Cr. 

....      $200,000 
40,000 
37,500 
9,000 
10000 

Bills  Payable 

30,000 

Accounts  Payable 

35000 

Surplus    .           

7,000 

Dividends  Declared  
Real  Estate  and  Plant    .  . 
Accounts  Receivable  .... 
Goods  in  Process 

10,000 
$135,000      .... 
88,200      .... 
17,000      .... 
25,000      .... 
15,000      

$137,500      .... 
80,200      .... 
17,000      .... 
25,000      .... 
15,000      .... 
57,000 

$137,500      .... 
80,200      .... 
20,000      .... 
23,000      .... 
35,000      .... 

Finished  Goods  

Raw  Materials  Inventory 
Raw  Materials 

Wages    . 

7,000 

52,000      .... 
2,300      .... 
2,200      .... 
7,500      .... 
113,200 

2,000 
200 
1,000      .... 

2,000      .... 

Taxes  

200 

Insurance 

1,000      .... 

General  Expenses 

Sales  

Cash 

8,000      .... 

2,000      .... 

$289,200  $289,200 

$397,700  $397,700 

$298,700  $298,700 

[The  work  should  be  self-proving.] 


MUNICIPAL  ACCOUNTING 

[Chapter  XX] 

83 

A  city  department  on  July  1  is  authorized  to  make  charges  or 
levies  or  assessments  that  will  give  it  an  estimated  revenue  of 
$3,000,000.  On  August  1  it  sends  out  bills  for  $1,500,000.  On 
September  1  it  is  authorized  to  make  expenditures  or  incur  liabili- 
ties for  $2,500,000.  On  October  1  it  enters  into  contracts  involv- 
ing expenditures  of  $500,000.  On  November  1  it  collects  on  bills 
$750,000  in  cash.  On  December  1  it  places  orders  for  purchases 
on  the  open  market  for  $100,000.  On  January  1  it  pays  for  its 
open-market  purchases  and  pays  $200,000  on  contract  liabilities. 

(a)  Show  the  accounts,  and  the  balance  sheet,  that  will  give  the 
officials  full  information  regarding  the  status  of  their  balances  — 
revenues,  appropriations,  expected  receipts,  current  cash,  liabili- 
ties, etc.,  —  without  interfering  with  the  ordinary  bookkeeping 
of  the  treasurer  and  collector. 

(6)  Suppose  the  department  were  authorized  to  borrow  cash,  in 
anticipation  of  revenues,  and  to  issue  obligations  therefor,  not 
exceeding  $100,000  at  par,  and  had  used  that  authority,  on  July  15, 
for  a  loan  of  $100,000.  What  entries  should  you  recommend  for 
presenting  information  akin  to  that  given  by  the  entries  required 
above  ?  (New  accounts,  with  expressive  titles,  may  be  established 
if  necessary.) 

[The  balance  sheet  required  by  (a)  gives  a  total  of  $2,700,000.] 


84 

A  city  contributes  $17,500  at  the  beginning  of  each  year  for  five 
years  to  a  sinking  fund.  Suppose  the  cash  in  the  fund,  including 
income,  is  always  invested  as  soon  as  available,  either  in  4  %  bonds 
at  par  or  on  the  market  at  4  %.  Make  the  entries  and  show  the 
balance  sheet  at  the  end  of  the  time  after  the  income  has  been  added 
to  the  principal. 

[Total  of  the  balance  sheet,  $98,577.07.] 

86 


THE  NATURE  OF  COMMERCIAL  DISCOUNTS 
[Chapter  XXI,  pages  340-342] 

85 

Accepting  the  theory  that  merchandise  discounts  forfeited  are 
more  important  to  watch  than  discounts  taken  and  given,  and  that 
the  offering  of  discounts  is  in  reality  only  a  device  for  offering  mer- 
chandise at  a  normal  price  to  those  who  do  not  ask  extended  credit, 
show  what  entry  is  necessary,  in  each  of  the  following  cases,  to 
record  all  the  desired  facts  when  the  bill  is  paid.  Goods  are  sup- 
posed to  be  both  bought  and  sold  on  terms  of  6  %  discount  when 
payment  is  made  in  10  days,  5  %  in  30  days,  net  in  60  days,  and  in 
every  case  the  figure  given  below  is  the  full  amount  of  the  bill. 

On  January  1,  Doe  pays  his  invoice  of  November  2,  amounting 
to  $500;  Hoe  pays  his  of  December  2,  amounting  to  $1,000;  Roe 
pays  his  of  December  22,  amounting  to  $200. 

On  the  same  day,  you  pay  to  Poe  your  bill  of  December  2,  $300, 
and  to  Coe  your  bill  of  December  22,  $700. 

[The  new  debits  to  Merchandise  (or  Sales)  should  be  $102;  the 
credits  to  Merchandise  (or  Purchases)  should  be  $60;  the  credits 
to  Collected  Discounts,  $40;  the  debits  to  Neglected  Discounts, 
$3;  the  debits  to  Cash,  $1,638;  the  credits  to  Cash,  $943;  the 
debits  to  Accounts  Payable,  $1,000;  the  credits  to  Accounts  Re- 
ceivable, $1,700.] 


37 


THE  NATURE  OF  PROPRIETORSHIP  PROFITS 
[Chapter  XXI,  pages  342-346] 

86 

Below  are  shown  on  ledger  accounts  all  the  facts  of  relationship 
between  the  proprietor  of  a  business,  who  gives  all  his  time  to  it,  and 
the  business  itself.  How  far  do  these  accounts  help  in  answering 
these  two  questions: 

(a)  Supposing  the  proprietor  is  offered  a  salary  of  $8,000  as 
manager  of  another  business,  on  condition  that  he  give  up  his  own, 
will  he  presumably  gain  or  lose  (assuming  that  no  change  in  the 
profitableness  of  his  own  business  would  occur  if  he  should  remain 
with  it)  by  accepting  the  offer  ? 

(6)  If  a  corporation  is  to  be  organized  to  buy  out  the  business, 
and  it  is  presumed  that  the  change  of  legal  form  will  have  no  appre- 
ciable effect  on  the  amount  of  business  done  or  on  the  economy  or 
profit  with  which  it  is  done,  how  should  you  go  to  work  to  deter- 
mine what  capitalization  will  presumably  allow  8  %  dividends  ? 

PROPRIETOR'S  CAPITAL  ACCOUNT 

1 1 1  Jan.     1,  1914  Balance  1 125,000  * 

PROPRIETOR'S  DRAWING  ACCOUNT 


July  15,  1914 
Dec.  31,  1914 


Cash 
Cash 


5,000 
5,000 


Dec.  31,  1914|Profit  and  LossI  10,000 2 


1  The  assets  are  conservatively  valued,  and  are  readily  saleable. 
*  This  represents  a  fair  average  over  a  series  of  years. 


88 


CONSOLIDATIONS 

[Chapter  XXI,  pages  346-351] 

87 

Four  businesses  yield  the  following  statistics: 

Business  Net  Average  Assets  Net  Average  Income 

A  $300,000  $36,000 

B  50,000  10,000 

C  150,000  24,000 

D  140,000  14,000 

Consolidation  is  supposed  to  increase  profits,  of  the  combination, 
by  $28,000  over  the  combined  profits  of  the  individual  businesses, 
and  capitalization  is  to  be  on  a  10  %  basis.  What  stock  shall  be 
given  to  each  business  entering  the  combination  if  each  is  to  be 
given  stock  at  par  for  its  old  assets,  which  chance  to  be  appraised 
at  the  figures  of  the  net  average  assets  above,  and  such  stock  in 
addition  as  is  warranted  by  the  suppositions  shown  below  ? 

(a)  The  difference  in  earning  capacity  of  the  old  businesses  was 
due  not  to  difference  of  management  but  to  difference  of  opportun- 
ity, and  hence  any  difference  in  income  of  the  consolidation  will 
arise  from  the  changed  scale  of  business  and  from  the  unified  con- 
trol. 

(6)  The  old  differences  in  income  were  presumably  due  to  dif- 
ferences in  efficiency  of  management,  and  hence  the  gain  from 
consolidation  will  arise  chiefly  from  the  fact  that  the  better  man- 
agement of  the  businesses  previously  more  profitable  will  now  ex- 
tend over  those  previously  less  profitable;  the  stock  to  be  issued  for 
the  anticipated  gam  by  consolidation  is  therefore  to  be  distributed 
on  the  basis  of  the  evidence  of  previous  good  management,  and 
the  stock  representing  old  good  will  is  to  be  distributed  on  the  basis 
of  old  good  will. 

(c)  To  both  of  the  arrangements  above  someone  desired  in  the 
combination  refuses  to  agree,  and  a  compromise  is  made  under 
which  all  the  stock  to  be  issued  above  the  appraised  value  of  the 
assets  is  to  be  distributed  on  the  basis  of  old  good  will. 


90      PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 

If  the  managers  of  D  still  refuse  to  enter  the  combination  and 
their  participation  is  desired,  what  adjustment  can  be  made  in  the 
plan  without  interfering  with  its  automatic  character,  and  how 
will  it  work  out  ? 

[(a)  A,  $525,000;  B,  $87,500;  C,  $262,500;  D,  $245,000 
(6)  A,  $391,100; l  B,  $255,600; l  C,  $333,300; l  D,  $140,000 
(c)  A,  $444,000;  B,  $170,000;  C,  $366,000;  D,  $140,000] 

1  Small  balances  of  less  than  one  share  would  be  adjusted  by  cash  settle- 
ments. 


INSOLVENCY  SETTLEMENTS 
[Chapter  XXII,  pages  354-362] 


A  business  is  in  financial  difficulties  with  the  following  balance 
sheet : 

Accounts  Receivable  .    $35,000     Partners $40,000 

Merchandise 44,500    Accounts  Payable    . .  .  43,000 

Cash 3,000    Bills  Payable 12,000 

Bonds 14,000    Wages  due 1,000 

Taxes  due   .  500 


$96,500  $96,500 

Of  the  accounts  receivable,  $20,000  are  estimated  to  be  good; 
$7,000,  probably  worth  $3,000;  $8,000,  worthless.  The  mer- 
chandise is  probably  worth  $12,000.  The  bonds,  presumably 
worth  book  value,  are  pledged  as  security  for  the  bills  payable. 
The  estimated  cost  of  liquidation  (fees,  expenses,  etc.)  is  $3,000. 
Show  the  statement  of  affairs,  with  the  probable  percentage  of 
payment  on  unsecured  balances. 

In  the  process  of  liquidation,  the  accounts  receivable  yield 
$23,000,  the  merchandise,  $16,000,  the  bonds,  $9,500;  the  expense 
of  liquidation  is  $3,000.  Show  the  accounts  for  the  process  of 
liquidation,  including  the  deficiency  account. 

What  is  the  actual  percentage  of  payment  on  unsecured  bal- 
ances ? 

[Estimated  percentage  of  payment  on  unsecured  balances, 
82.56;  actual  percentage  of  unsecured  balances  paid,  82.42. 
Deficiency  account  debits:  Realization,  $45,000;  Expenses  of 
Liquidation,  $3,000.  Deficiency  account  credits:  Liquidation, 
$8,000;  Partners,  $40,000.] 


91 


92      PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 


A  firm's  assets  are  found  to  be  as  follows:  cash,  $2,000;  land 
and  buildings  (conservatively  estimated,  but  mortgaged  for 
$8,000),  $10,000;  plant  and  equipment  (conservatively  estimated, 
but  mortgaged  for  $9,000),  $20,000;  unfinished  goods  in  process  of 
manufacture,  probably  worth  cost,  $30,000;  bonds  owned  (of 
which  $6,000  have  been  put  up  as  collateral  for  a  $5,000  loan  in- 
cluded in  bills  payable),  worth  the  book  value  of  $14,500;  materials 
on  hand  (probably  saleable  for  $500),  $2,000;  book  accounts  (of 
which  one-half  are  deemed  good  and  the  other  half  worth  three- 
quarters  of  the  book  figures),  $6,000.  The  debts  are  as  follows 
(besides  the  mortgages  mentioned  above) :  trade  creditors,  $43,400; 
bills  payable,  $16,000;  taxes  and  wages  accrued,  $1,300;  liability 
on  endorsements  of  past-due  notes  which  the  firm  has  discounted, 
but  on  which  it  probably  cannot  recover,  $13,000.  The  partners' 
capital  has  remained  unchanged  on  the  books  throughout  the  year 
at  $50,000,  but  operations  have  resulted  in  a  loss,  shown  on  the 
profit  and  loss  account,  of  $43,200. 

Make  out  a  statement  of  affairs,  assuming  that  the  expenses  of 
liquidation  will  be  $1,450. 

Suppose  that  the  actual  realization  falls  short  of  the  estimates 
by  $3,000,  but  the  estimate  of  expenses  is  correct.  Show  the  ac- 
counts for  realization  and  liquidation,  including  the  deficiency 
account. 

[The  deficiency  account  will  show  debits  and  credits  of  $62,900 
each.] 


APPENDIX  A 

SPECIAL  FORMS   AND  BOOKS 

[Pages  369-396] 

90 

Arrange  a  form  of  cash  book  (receipts  and  disbursements)  for 
the  entry  both  of  payments  by  customers  and  of  payments  by  the 
business  of  bills  (less  any  discounts  for  early  payment)  already 
entered  to  Accounts  Receivable  and  to  Accounts  Payable,  under 
the  plan  by  which  only  discounts  actually  taken  or  given  are  en- 
tered on  the  books. 

(a)  Enter  the  transactions  of  Problem  85  in  such  a  way  that 
contra  discounts  shall  be  used. 

(6)  Enter  them  so  that  no  transfers  need  be  made  from  one  side 
of  the  cash  book  to  the  other. 

[In  either  case  the  Discounts  Taken  should  be  credited  $57,  and 
the  Discounts  Given  should  be  debited  $62.] 


91 

Using  a  purchase  journal  somewhat  similar  to  that  on  page  376 
or  that  on  page  377,  a  sales  journal  somewhat  similar  to  that  on 
page  379,  and  a  cash  book  somewhat  similar  to  that  on  page  371  or 
that  on  page  373  (with  additional  columns  where  feasible),  make 
the  entries,  post  the  books,  and  take  a  trial  balance,  for  the  trans- 
actions of  Problem  24. 


92 

Show  the  deposit  ledger,  the  discount  register,  the  cash  book, 
and  the  general  ledger  for  these  bank  items : 

Jan.  15.  The  balance  of  deposits  at  the  beginning  of  business 
for  the  day  is  for  Brown,  $5,000;  for  Gray,  $2,000;  for  White, 


94      PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 

$6,000.!  On  that  day  Gray  deposits  $2,970,  which  happens  to  be  a 
check  drawn  on  this  bank  by  Brown. 

Feb.  7.  A  note  for  $3,000  signed  by  White,  dated  January  15, 
payable  in  two  months,  is  discounted  by  the  bank  for  Brown  (dis- 
count $19),  and  is  credited  to  Brown's  account.  Another  note  for 
$1,000  signed  by  White,  dated  December  15,  payable  in  three 
months,  is  discounted  for  Gray  (discount  $6.33),  and  is  credited  to 
Gray's  account. 

March  15.  White  pays  the  two  notes,  which  the  bank  holds 
against  him,  by  a  check  on  the  bank  itself.  A  note  of  Green  for 
$1,000  dated  February  15,  payable  in  two  months,  is  discounted 
(discount  $5),  and  a  cashier's  check  is  given  for  it.  The  cashier's 
check  is  paid. 

Show  the  trial  balance  at  the  close  for  the  items  given. 

[The  trial  balance  of  ledger  balances  will  have  four  items  and  a 
total  of  $13,005.00.] 


93 

A  cashier  found  on  receiving  the  statement  of  his  account  with 
his  bank  that  the  bank's  balance  did  not  agree  with  his  check-book 
balance.  He  proceeded,  of  course,  to  reconcile  the  two  sets  of 
figures.  The  difference  between  the  two  sets  of  figures  one  month 
later  was  even  greater.  He  found  no  mistake  in  either  set  of 
figures,  and  therefore  was  able  to  reconcile  the  two  sets  for  both 
dates. 

The  check-book  figures  for  the  month  of  January  were  as  shown 
below,  for  the  balance  was  shown  on  the  check  book  after  each 
check  was  drawn  and  after  each  deposit  was  made.  Numbers 
indicate  checks  drawn,  and  fractional  expressions,  as  1/27,  indicate 
dates. 

1  Assume  the  corresponding  cash  to  be  on  hand. 


SPECIAL  FORMS  AND  BOOKS  95 

Check  book  bal.  1/1.  .  $1,290.24    Brought  forward    . .  $1,842.82 
#621  250.00    Deposit  1/15 366.99 


1,040.24  2,209.81 

#622  .  50.00  #625  .  701.25 


990.24  1,508.56 

Interest  22.45    Deposit  1/25 410.78 


1,012.69  1,919.34 

Deposit  1/5 597.45  #626  ....          25.00 


1,610.14  1,894.34 

#623 1,000.00  #627  ....        416.67 


610.14  1,477.67 

Deposit  1/7 525.30  #628  ....          59.78 


1,135.44  1,417.89 

Deposit  1/11  ....        711.38  #629  ....          50.00 


1,846.82  1,367.89 

#624  .  4.00  #630  .  33.33 


Carried  forward  .     1,842.82    Balance  2/1    1,334.56 


96      PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 
The  bank  statement  for  January  was  as  follows: 


Balance  12/30... 
Deposit   

$1,556.26 

687.68 

Check      #618  .... 
#622  .... 

$132.06 
50.00 

Interest 

597.45 
525.30 
711.38 
366.99 
419.28 
2.50 

#625  .... 
#615  .... 
#619  .... 
#623  .... 

#621  .... 
#617  

701.25 
497.66 
29.95 
1,000.00 
250.00 
48.78 

#624 

4  00 

4,866.84 

#616  .... 
#620  .... 
Charge  for  collection 
No  signature  l 

209.80 
13.00 
.25 
8.50 

Balance  1/30 

2,945.25 
1,921.59 

4,866.84 

Reconcile  the  check-book  figures  to  the  bank  figures,  by  proper 
additions  and  subtractions  (in  memorandum  only),  for  the  begin- 
ning of  the  month;  and  reconcile  the  bank  figures  to  the  check- 
book figures  for  the  end  of  the  month. 

Explain  what  presumably  happened  with  respect  to  the  no- 
signature  check. 

[Lumping  in  one  sum  all  items  of  the  same  sort  (though  they 
should  be  shown  in  detail  in  a  separate  schedule),  the  adjustments 
necessary  for  reconciliation  at  the  beginning  of  the  month  are  three 
in  number.  The  number  at  the  end  of  the  month  is  the  same.] 

1  A  check  was  deposited  though  lacking  the  signature  of  the  customer  and 
hence  was  returned  and  charged  back. 


APPENDIX  B,   I 

OPENING  CORPORATION  BOOKS 

[Pages  401-407] 

94 

A  corporation  is  organized  from  two  partnerships.  The  prop- 
erty of  each  partnership  was  appraised  especially  for  the  new  or- 
ganization, and  the  balance  sheets  resulting  were  as  follows: 


A.  &  B.  C.  D.  &  Co. 

Real  Estate $50,000  $100,000 

Accounts  Receivable 15,000  26,000 

Merchandise 46,000  53,000 

Fixtures 4,000  5,000 


$115,000  $184,000 

Liabilities 

Proprietors  $90,000  $75,000 

Accounts  Payable   5,000  15,000 

Bills  Payable   5,000  40,000 

Allowance  for  Bad  Debts 3,000  5,000 

Undivided  Profit  Reserve  .                   12,000  49,000 


$115,000        $184,000 

The  new  corporation  takes  over  both  the  assets  and  the  lia- 
bilities of  each  business  at  par;  it  is  agreed  that  the  good  will  of 
C.  D.  &  Co.  is  worth  $25,000  and  that  of  A.  &  B.  is  worth  $20,000; 
and  stock  is  issued  to  each  on  those  bases.  To  raise  cash, 
for  none  is  transferred  by  the  old  partnerships,  subscriptions  are 
received  for  $29,000  of  stock  at  105,  and  one  installment,  of  one 
half  the  total,  is  paid  in  cash. 

Show  the  balance  sheet  of  the  corporation  at  this  stage. 

[Thirteen  items  will  appear  on  the  balance  sheet,  and  the  amount 
of  each  side  will  be  $374,450.] 

97 


98      PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 

95 

The  net  assets  are  on  the  books  of  a  business  at  $250,000. 

It  is  decided  to  form  a  corporation  with  a  capitalization  of 
$400,000.  The  old  proprietor  is  to  be  given  $275,000  in  stock,  and 
$25,000  in  cash. 

Stock  is  subscribed  for  by  outsiders  to  the  amount  of  $75,000,  at 
par,  in  two  installments  of  $37,500  each. 

The  first  installment  of  subscriptions  is  paid. 

The  original  proprietor  transfers  his  business  and  is  given  his 
stock  and  cash. 

New  subscribers  now  subscribe  for  $50,000  of  stock  at  110,  in 
two  installments  of  $27,500  each  (installments  $3  and  $4). 

Installment  #  2  is  paid  and  the  stock  is  issued. 

Installment  $  3  is  paid. 

Stock  with  a  par  value  of  $25,000  is  donated  to  the  corporation. 

The  donated  stock  is  sold  at  $80  a  share  (par  value  $100). 

Show  the  balance  sheet  at  this  point. 

[The  total  should  be  $425,000  with  four  items  on  each  side, 
counting  the  old  assets  as  one  item.] 


APPENDIX  B,   II 

CLOSING  BY  JOURNAL  ENTRIES 

[Pages  407-409] 

96 

Make  the  entries  through  the  journal  for  closing  the  books  of  a 
business  which  yields  the  following  figures : 

Trial  Balance 

Dr.  Cr. 

Cash $175,000  $170,000 

Merchandise 138,000  128,000 

Accounts  Receivable 148,000  126,000 

Accounts  Payable   137,000  141,000 

Real  Estate 35,000  2,000 

Fixtures 8,000  1,000 

Depreciation 4,000 

Expense 23,000 

Interest 1,500  500 

Commission    1,000  2,000 

Proprietor 100,000 


$670,500          $670,500 

Inventories 

Merchandise    $57,000 

Supplies   200 

Real  Estate  33,000 

Fixtures   7,000 

Accrued 

Interest  resource $200 

Commission  liability    100 

Prepaid 

Insurance  (charged  to  expense)   $100 

[Total  of  new  balance  sheet,  $124,500.] 


100    PROBLEMS  IN  THE  PRINCIPLES  OF  ACCOUNTING 

97 

The  net  inventory  of  merchandise  at  the  beginning  of  the  year 
was  $53,000.  The  sales  were  $367,000,  and  the  returned  sales 
$17,000.  The  purchases  were  $215,000,  and  the  returned  pur- 
chases $3,000.  The  discounts  given  were  $7,000,  and  the  discounts 
taken  $8,000.  Enter  all  items  given  above  as  ledger  balances  on 
the  books,  each  in  an  account  by  itself.  The  gross  inventory  at  the 
end  of  the  year  was  $46,000,  but  depreciation  of  $9,000  was  deemed 
necessary.  Make  journal  entries  to  carry  all  these  items  into 
Merchandise  as  a  clearing  account;  and  show  the  new  net  inven- 
tory on  an  inventory  account  for  the  new  year. 

[Test  by  independent  figuring  the  correctness  of  your  final  figure 
for  profit  and  loss  and  for  the  inventory  account.] 


APPENDIX  C 

SINGLE  ENTRY 
98 

Single  entry  books  showed  the  following  balances  at  the  begin- 
ning of  a  year:  Proprietor,  Cr.  $55,000;  Accounts  Payable,  Cr. 
$27,000;  Accounts  Receivable,  Dr.  $38,000. 

The  cash  book  showed  $7,000.  The  inventory  of  goods  showed 
$33,000,  and  of  fixtures  and  supplies  $4,000. 

A  year  later,  without  any  closing  of  the  books  in  the  interim,  the 
amounts  (in  the  same  order  of  items  as  before)  were  as  follows : 
$52,000,  $25,000,  $36,000,  $9,000,  $35,000,  $3,000. 

What  was  the  profit  or  the  loss  for  the  year  ? 

Where  was  the  profit,  or  what  kind  of  loss  had  been  suffered  ? 

[The  amount  of  profit  or  of  loss  was  $6,000.] 


99 

On  a  set  of  books  all  the  accounts  relating  to  the  two  partners 
are  at  the  end  of  a  year  as  follows:  A's  capital  account,  credit 
balance,  $34,000;  B's  capital  account,  credit  balance,  $28,000; 
A's  salary  account,  debit  balance,  $4,000;  B's  salary  account, 
debit  balance,  $4,000;  A's  interest  account,  credit  balance,  $1,700; 
B's  interest  account,  credit  balance,  $1,400.  The  partners  have 
not  yet  been  credited  for  salaries  provided  by  the  partnership 
agreement  ($4,000  each) ,  and  as  the  books  are  kept  by  single  entry 
no  nominal  account  has  been  debited  for  the  partners'  interest. 
The  assets  and  outside  liabilities  are  as  follows:  cash,  $12,000; 
merchandise,  $25,000;  fixtures,  $2,000;  accounts  receivable, 
$35,000;  accounts  payable,  $5,000. 

What  was  the  profit  or  the  loss  subsequent  to  the  previous 
closing  of  the  books  ? 

[The  amount  of  profit  or  of  loss  was  $3,900.  Is  this  counting 
interest  and  salaries  as  costs  or  as  profits  ?] 

101 


APPENDIX  E 

PETTY  CASH  AND  VOUCHER  SYSTEMS 
100 

(1)  The  petty-cash  account  is  debited  for  $50.00  at  the  time  the 
petty-cash  drawer  is  established.      The  following  payments  are 
made  from  petty  cash:  telegrams,  $22.67;  car  fares,  $13.18;  laun- 
dry, $1.58;    newspapers  and  magazines,  $2.10;    express,  $9.15. 
Then  the  petty-cash  drawer  is  replenished  by  a  new  amount,  the 
intention  being  to  keep  the  petty-cash  "  bank  "  approximately 
constant. 

Make  the  entries  for  all  these  transactions  by  each  of  the  three 
common  methods  of  handling  petty  cash,  and  show  the  petty-cash 
account  in  the  general  ledger  for  each. 

[Test  the  correctness  of  your  work  by  considering  what  will 
actually  be  in  the  petty-cash  drawer.] 

(2)  Enter  in  the  voucher  register  all  the  items  not  merchandise 
for  which  payment  was  made  in  Problem  24,  but  treat  the  date  of 
payment  in  that  problem  as  the  date  of  incurring  the  debt.     Use 
the  voucher  register  as  a  principal  book.     Assume  payment  for  all 
items  entered  to  be  made  ten  days  later.     Enter  in  the  cash  book 
all  payments  falling  within  the  month  (on  the  dating  plan  indi- 
cated above),  but  leave  unpaid  all  items  going  over  into  the  next 
month. 

[Test  the  accuracy  of  your  work  by  the  balance  of  Vouchers 
Payable.] 


102 


THIS  BOOK  IS  DUE  ON  THE  LAST  DATE 
STAMPED  BELOW 


AN  INITIAL  FINE  OF  25  CENTS 

WILL  BE  ASSESSED  FOR  FAILURE  TO  RETURN 
THIS  BOOK  ON  THE  DATE  DUE.  THE  PENALTY 
WILL  INCREASE  TO  SO  CENTS  ON  THE  FOURTH 
DAY  AND  TO  $I.OO  ON  THE  SEVENTH  DAY 
OVERDUE. 


SEP    16  193 

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